- Author – CA Unmesh K. Mehta
The Union budget 2022 presented by FM Ms. Nirmala Sitharaman has evoked mixed response from trade and industry. However, what one can see is that there is definitely a reflection of confidence and conviction of the Government in the management of the economy and finance which is visible in the budget. There seems to be a clarity, consistency, stability and continuity which one can not miss in the vision and direction of the Government whether it is a fiscal, non-fiscal, policy, legal or regulatory initiative. There are many strategic initiatives with clear focus which shows that Government means business. It is also quite sensitive and watchful of the situation as it emerges and is ready to modify its paln. We summarise below the important indicators of both actions and intentions of the Government. We would also discuss the challenges before us in achieving the objectives.
Growth- the main mission where Govt. is leading from the front
- The Government has set a target of 8.5% growth in the GDP for 2022. Thus it is a budget that wants to spur growth. It has chosen growth over risk of inflation.
- The Government wants to continue the momentum given to the economy by the stimulus given by way of ECLGS, PLI and other initiatives and continue the revival process in the economy.
- Govt. has targetted INR 7.50 lac Cr. for Capex up from 5 Lac Cr. last year. Ideally, a rupee spent on Revenue Exp. leads to effective demand of INR 0.95
While One rupee of CAPEX leads to effective demand of 2.95 INR. The intention of the Govt. is to leverage Capex for growth.
- The object of the Govt. is to kickstart private investment crowding in following the public investment. It believes that more spend on Infra will lead to more private investment leading to more growth and so more employment. It wants to kickstart a virtuous cycle. Alongside it also to take benefit of major reshuffle happening in the supply chain world over due to the pandemic and wants share of India in world economy to rise.
- Govt. has focused on businesses in 7 sectors which mainly are employment generating and technology based.
- Only PLI initiative is estimated to create more than 60 Lac jobs.
- At the same time Government also wants India to be Self Reliant as far as possible and so ‘Make in India’ is the underlying proposition in all of its actions like at least 68% Indian components in Defense etc.
- Govt. has chosen to take calculated risk to spur growth vs. risk of inflation and high fiscal deficit.
- For financing the Capex, Government has relied on liberal borrowing, asset monetization, disinvestments and increase in tax collection.
- Main areas where the Govt. will invest are- Infrastructure, Agriculture, Defense, Industry and Education & health.
Steadiness, Predictability, Continuity, Sustainability and Sensitivity: –
- These are the characteristics of the mindset with which Govt. is taking various steps.
- Govt. wants the tax and the laws to be stable and predictable and so no tinkering is done with tax rates.
- It has extended many schemes which shows continuity.
- The vision of the Govt. is long term and the budget is only a step into that direction.
- Govt. is quite watchful of what is happening on the ground and changes its action accordingly.
- Various policy, fiscal, tax, regulatory and other actions taken are part of a strategy.
Infrastructure:-
- Improvement of the present poor infrastructure has been both a challenge and also a bottleneck in the way of growth.
- The main focus of the Govt. expenditure will be on improving the infrastructure in India. 25000 km. of new highways, 400 new trains, multi modal transport connectivity are some of the focus areas.
- Other initiatives for enabling the work on ground and clarity in implementation will also help fast execution.
- Govt. wants to focus on large scale Infra projects which can attract foreign investors.
- PM Gatishakti driven by development of seven sectors- Roads, Railways, Airports, Ports, Mass Transport, Waterways and logistic infrastructure to improve the speed and connectivity of movement of goods and people. This will increase productivity and economic development.
- A high level committee for gearing for urbanization
- 80 lac houses will be completed under PM avas Yojana with 48000 cr. exp.
Agriculture:-
- Though more than 58% of the Indian population is engaged in agriculture, it is growing at below 4% annually.
- Budget has taken various initiatives like encouraging organic farming, branding, procurement support, making available hydro and solar power, agro forestry, R&D for high yielding seeds, drones, export etc.
- A fund will be set up for finance of start ups in agriculture and rural segments.
MSME, Start Ups and Industries:-
- Digitisation of various services to facilitate MSMEs in G2C, B2C and B2B areas.
- ECLGS will be extended to 31 March 2023 and extra 50000 Cr. provided for hospitality sector with overall cap of 5 lac cr.
- CGTMSE schemes will be strengthened to facilitate financing of MSMEs.
- Thematic Funding in partnership with private fund managers for sun rise sectors like climate action, deep-tech, digital economy, pharma and agri tech
- Committee for facilitating venture capital and private equity investment in start ups.
- Govt. will support and facilitate in various ways sunrise industries like AI, Semi-conductors, space economy, pharmaceuticals, green energy, clean mobility etc. which has immense potential for youth employment.
- The dates for tax incentives for setting up of a new start up is extended by one year up to 31-3-2023.
- Date of commencement of production extended to 31-3-2023 for eligibility for incentives in case of newly set up manufacturing companies of 15% income tax.
- The direction of the Govt. is towards more formalization and integration of the businesses and economy.
Ease of Doing Business: –
- Many compliances and laws removed recently.
- Minimum government, maximum governance is motto
- Ease of Doing Business 2.0 and Ease of living will be launched. Digitisation of manual processes, integration of state and central systems, standardization of compliances, participation of businesses will drive the same.
- Further boost to digital banking and digital payments
Education and Health care:-
- To boost education many initiatives like skill development, tech enabled education PM eVidya, new labs in science and maths, setting up of digital university
- Digitisation of health service, national tele mental health programme, tele health, Saksham anganwadi etc. steps
Tax and Other Measures:-
- Focus on improving tax to GDP ratio from around 11% by widening and deepening of tax base- Adding new tax payers and collecting correct revenue from the existing tax payers.
- Recognition and clarity on digital assets. RBI will come out with digital currency. Tax and TDS on profit made on transfer of virtual digital assets.
- Reduced litigation- No appeal will be filed by the Govt. for a case pending with higher courts on similar law point.
- Voluntary compliance- Filing of updated returns within 2 years from the end of the assessment year with additional taxes. Come clean otherwise the Govt. knows.
- Continuation of protection to Indian Industry by way of custom tariffs.
- Govt. needs positive capital market as massive disinvestment is planned.
- Govt. intends to remove exemptions in custom duty on finished items which can be manufactured in India and provide concessional duty on raw materials used in manufacturing.
- Gradual phasing out of concessional import tariffs in Capital Goods and Project import and 7.5% duty will be imposed except certain advanced machineries and other items not manufactured in India.
- Support by streamlining tariff rates to help domestic manufacturers in Electronics, Gems & Jewellery, Chemicals, MSME and exports.
Challenges:-
However, the path ahead is not all roses only. There are many challenges before the country in achieving growth rate of 8.5 or above. Following are some of them-
- Rising inflation is a major challenge. Rate of Inflation has crossed 6%. This poses a challenge for sustainable growth.
- High oil prices and increasing cost of inputs and freight is also a major bottleneck. High input cost is a big drain on profitability as it is difficult to pass the price increase on to customers.
- High shipping cost and cost/shortage containers are making international trade difficult.
- Shortage of semi conductors and chips are badly affecting production in automobile and electronics business.
- Supply Chain constraints are also affecting growth. Private investment will come once it is assured of adequate capacity utilization. If existing capacities are unutilized, or there are cheaper import options, new investment will not come.
- Real expenditure should result into real output without causing inflation. If demand rises but supply is limited, it will result into inflation.
- Successful Implementation and execution of various initiatives is also very important.
Let us hope that the Government, in partnership with private sector succeeds in kick start of a virtuous cycle of growth, employment, profitability and inclusive economic development of India.
