Digital currency, 30% tax on digital assets, 35% hike in capex to Rs 7.5 lakh crore
A big infra push to revive the Covid-19 hit economy, few populist measures, no tinkering with personal income tax, and 30 per cent tax on digital assets were some of the key highlights of the Union Budget that Finance Minister Nirmala Sitharam said will usher the Indian economy into Amrit Kaal, the 25-yearlong lead up to India@100.”
The Rs 39.45 lakh crore Budget proposes massive spending on highways and affordable housing, among other sectors, with a view to firing up the key engines of the economy to sustain the economic recovery from the pandemic.
The Finance Minister ignored the economic wizards lay emphasis on fiscal consolidation and instead prioritised economic expansion.
The absence of populist measures will provide the Government much-needed leg room to increase spending on infrastructure to create jobs and boost economic activity. At the same time, the Sitharaman did not tinker with income tax slabs or tax rates.
“We are marking Azadi ka Amrit Mahotsav, and have entered into Amrit Kaal, the 25-year-long leadup to India@100,” the Minister said, adding, “The fundamental tenets of the Budget include transparency of financial statement and fiscal position, and reflect the Government’s intent, strengths, and challenges.”
Her Budget for the fiscal year beginning April 2022 proposed a massive 35 per cent jump in capital expenditure to Rs 7.5 lakh crore, coupled with the rationalisation of customs duty, an extension of time for setting up new manufacturing companies and plans for starting a digital currency and tax crypto assets.
Some of the key areas for boosting infrastructure spending are: 5G spectrum auction, expanding national highways by 25,000 km, interlinking of rivers, and manufacturing of 400 new generation Vande Bharat trains.
“The overall sharp rebound and recovery of the economy is reflective of our country’s strong resilience,” she said in her Budget speech in the Lok Sabha, vowing to lay the foundation for faster growth.
The Budget also focuses on technological intervention to improve services. As per the Budget speech by the Finance Minister, the Reserve Bank of India will issue blockchain-enabled digital currency starting this year. This could help in achieving the objective of an efficient and cheaper currency management system.
Similarly, the Budget proposes to introduce e-passport that will remove bottleneck in the passport offices across the country.
Interestingly, even though the dependence of India’s poorest on MNREGA soared during the pandemic because of widespread unemployment due to job cuts and a gloomy economy, the allocation in Budget 2022 for the Government’s rural employment programme has been slashed by 25 per cent. The MNREGA fund allocation is Rs 73,000 crore for the financial year 2022-23, down from the revised estimate for the previous year (2021-22), which was Rs 98,000 crore.
She unveiled a proposal to introduce digital currency by the RBI and said digital assets will be taxed at 30 per cent with no deduction for any expenditure except the cost of acquisition of such asset.
The fiscal deficit, which unexpectedly rose to 6.9 per cent of the GDP for the current fiscal year ending March 31, 2022, is projected to come down to 6.4 per cent next year and 4.5 per cent by 2025-26.
India’s economy is projected to grow by 9.2 per cent in the current fiscal before slowing to 8-8.5 per cent in 2022-23 (April 2022 to March 2023). It had contracted by 6.6 per cent in the fiscal year ended March 31, 2021.
The Budget’s “approach is driven by seven engines,” Sitharaman said, listing roads, railways, airports, ports, mass transport, waterways and logistics infrastructure as the key areas.
“All seven engines will pull forward the economy in unison”, complemented by energy transmission, IT communication, water and sewerage sector and social infrastructure, she said.
The marginal rise in fiscal deficit for the current fiscal is against the expectations of the market and experts who expected slight decline in the numbers on the back of rising tax collections.
“The fiscal deficit in 2022-23 is estimated at 6.4 per cent of GDP, which is consistent with the broad path of fiscal consolidation announced by me last year to reach a fiscal deficit level below 4.5 percent by 2025-26. While setting the fiscal deficit level in 2022-23, I am conscious of the need to nurture growth, through public investment, to become stronger and sustainable,” the Finance Minister said.
The fiscal deficit of the Government for 2022-23 is estimated to be Rs 16,61,196 crore. The Revised Estimates for 2021-22 indicate a fiscal deficit of Rs 15,91,089 crore as against the Budget Estimates of Rs 15,06,812 crore.
The Finance Minister stated that the outlay for capital expenditure in the Union Budget is once again being stepped up sharply by 35.4 per cent from Rs 5.54 lakh crore in the current year to Rs 7.50 lakh crore in 2022-23.
With capital expenditure taken together with provision made for the creation of capital assets through Grants-In-Aid to States, the “Effective Capital Expenditure” of the Central Government is estimated at Rs 10.68 lakh crore in 2022-23, which will be 4.1 per cent of GDP, she said.
The total expenditure in 2022-23 is estimated at Rs 39.45 lakh crore, while the total receipts other than borrowings are estimated at Rs 22.84 lakh crore.
She further said that as against a total expenditure of Rs 34.83 lakh crore projected in the Budget Estimates 2021-22, the Revised Estimates are Rs 37.70 lakh crore.
In a bid to tap the allied farm and food processing sectors to boost farmers’ income, the Finance Minister proposed higher Budget allocation for these two sectors for the next fiscal, besides announcing finance support for startups, promotion of Kisan drones and PPP mode for delivery of high tech agri-services to farmers.
Sitharaman said inclusive development is one of the four priorities of the Government moving forward.
The Budget proposals laid the foundation for strengthening of different sectors like transportation and logistics sectors (Gati Shakti), banking and fintech (75 digital units to be set up), agriculture, EV sector (battery swapping policy), among others.
On the direct tax front, to further ease compliances for taxpayers, a new IT return system will be introduced and litigation will be reduced by restricting appeal rights of revenue authorities for consecutive years.
It marginally increased the time limit to commence production by March 31, 2024, for units opting for the beneficial corporate tax rate of 15 per cent.
To provide impetus to trust-based governance as a concept, an updated tax return system has been introduced wherein a taxpayer can file a tax return upon payment of specified taxes within 2 years from the end of the relevant assessment year.
To give a boost to the start-up community, she capped the surcharge on long-term capital gains at 15 per cent now.
As a push to promote exports, the SEZ Act will be replaced with a new legislation and States shall become partners for development of infrastructure.
In tandem, reforms are also proposed to be undertaken in the Customs administration of SEZs, with facilitation related changes to be made. From an indirect tax perspective, the concessional rate on capital goods imports under Project Import Scheme is proposed to be withdrawn, to promote domestic industry and imports will be taxed at 7.5 per cent now.