Budget Mantra: Spend, Spend, Spend
The much-awaited union budget is now behind us. Against much hope and expectations, there was no change in the tax slabs, and so no visible relief to the salaried class. Yes, Union Finance Minister (FM) Nirmala Sitharaman did express her empathy to those impacted by the pandemic. And yes, she also thanked the taxpayers in her Budget speech. “I take this opportunity to thank all the taxpayers of our country who have contributed immensely and strengthened the hands of the government in helping their fellow citizens in this hour of need.” That was it. A tweet from T.V. Mohandas Pai, Chairman, Manipal Global Education summed it all: “Budget 2022 is disappointing for taxpaying middle class, but overall positive for economy.”
As usual, the industry captains hailed the Budget as ‘progressive’, ‘growth oriented’, ‘bold’ and some more. And why not? After all, the FM said India’s economic growth was estimated at 9.2 per cent, which would be the highest among all large economies this year. Also, that 60 lakh new jobs could be created under the productivity linked incentive scheme in 14 sectors. TV Narendran, President, CII and CEO & MD, Tata Steel matter-of-factly said: “We cannot keep looking at the government to create jobs. The private sector needs to create jobs as well.” Sanjiv Mehta, President, FICCI and Chairman & Managing Director, Hindustan Unilever echoed Narendran: “The much higher allocation for capital expenditure will have a multiplier effect on the economy and help in sustaining the higher pace of growth. Higher investments in the core sectors will lead to greater demand across industries, push up the capacity utilisation rates and consequential private capex, create more jobs and through higher incomes reinforce greater consumption and demand.”
Prime Minister Narendra Modi while congratulating the FM said: “This Budget is full of new possibilities for more infrastructure, more investment, more growth, and more jobs.” And why won’t he. After all it is “PM Gati Shakti”— roads, railways, airports, ports, mass transport, waterways and logistics infrastructure—that have been identified as the seven growth engines for India. The Budget has a mega spending push centred on infrastructure creation that is in continuation of announcements made around National Infrastructure Pipeline last year. For FY23, the FM wants to mobilise Rs 20,000 crore for national highways network expansion. She has kept a target of 25,000 km of national highway expansion in FY23. Creation of multi-modal logistics park, bringing 1.5 lakh post offices under core banking solution, starting e-passports, ITbased management of land records, building a strong ecosystem for 5G, introduction of Digital Rupee, vision to establish a trustworthy tax regime, encouraging drone manufacturing and usage are among the announcements that have created an overall positive vibe around making India future-ready.
Mega Spending Push
“A budget is an estimation of revenue and expenses over a specified future period of time and is usually compiled and re-evaluated on a periodic basis.” That is perhaps the most overarching definition of Budget. Additionally, Budget Estimates (BE) and Revised Estimates (RE) also need to be understood while discussing the numbers. BE are Budget allocations announced at the beginning of each financial year while RE are estimates of projected amounts of receipts and expenditure until the end of the financial year.
In her Budget speech the FM said the government is estimated to spend Rs 39.44 lakh crore during 2022-23, a 4.6 per cent increase over RE of 2021-22. Of this, revenue expenditure is estimated to be Rs 31.94 lakh crore (0.9 per cent increase) and capital expenditure is estimated to be Rs 7.50 lakh crore (24.5 per cent increase). The increase in capital expenditure will mainly be due to a substantial increase in loans and advances to state governments, experts said. Loans and advances are estimated to be Rs 1.40 lakh crore in 2022-23, a whopping increase of 153 per cent over RE of FY22.
Where will these spends be? As per the Budget documents, Rs 11.81 lakh crore will be spent on Central sector schemes, while Rs 4.42 lakh crore will be spent on centrally sponsored schemes. The two things are different though. While central sector schemes are completely funded by the central government, the centrally sponsored schemes are funded partially by the central government and partially by state governments. Then, spends on pension are proposed to go up by 4 per cent over the RE for FY22 amounting to Rs 2.07 lakh crore.
But here is the big outgo of all. The expenditure on interest payment in FY23 is pegged at Rs 9.40 lakh crore or nearly 24 per cent of the overall expenditure. For FY23, the government will borrow Rs 14.95 lakh crore from the market, while net borrowing will be Rs 11.2 lakh crore to bridge the fiscal deficit gap. The government has borrowed Rs 10.47 lakh crore against the Budget estimate of Rs 12.05 lakh crore.
Banking on Increased Income
Enthused by record collections of the Goods and Service Tax (GST), corporation tax, and the taxes on income, the FM expects an overall increase in gross tax revenue to be 9.2 per cent in FY23. In number terms the figure is Rs 27.57 lakh crore. The net receipts are pegged to grow at around 5 per cent to Rs 22.83 lakh crore over the revised estimates of 2021-22. This excludes the borrowings. Why such optimism? The FM expects a 15.6 per cent growth in GST collections in the next fiscal over the RE of FY22. Which means against a RE of Rs 6.75 lakh crore for FY22, the FM projects the GST collections at Rs 7.80 lakh crore in FY23. The corporation tax collections are projected to grow at 13.4 per cent to Rs 7.20 lakh crore while the taxes on income are pegged at Rs 7 lakh crore. The total indirect tax collections are estimated to be Rs 13.30 lakh crore in 2022-23, with Rs 7.80 lakh crore coming from GST. Therefore, out of the total tax collections under GST, 85 per cent is expected to come from central GST (Rs 6.60 lakh crore), and 15 per cent (Rs 1.20 lakh crore) from the GST compensation cess. Overall, the gross tax revenue is budgeted to increase by 9.6 per cent over the RE of 2021-22. The net tax revenue of the central government (excluding states’ share in taxes) is estimated to be Rs 19.34 lakh crore in 2022-23. This is because devolution to states from the Centre’s tax revenue is estimated to be Rs 8.16 lakh crore in 2022-23. Notably, the non-tax revenue for FY23 is expected to decrease by 14 per cent to Rs 2.69 lakh crore due to a decline in interest receipts (by around 14 per cent) and a projected decline in dividend and profits (by 23 per cent). On the disinvestment side, the government has kept a target of Rs 65,000 crore, which is 17 per cent lower than the RE for FY22 (Rs 78,000 crore). As per last year’s Budget, the disinvestment target for FY22 was pegged at Rs 1.75 lakh crore (on successful disinvestment in LIC, Shipping Corporation and others).
Increased Outlays for Select Ministries
As per the Budget documents, 13 Central ministries have seen increased Budget allocation. Together, these 13 ministries account for more than 53 per cent of the overall expenditure for FY23. Of these, the defence ministry has got the highest allocation at Rs 5.25 lakh crore or more than 13 per cent of the total budgeted allocations. The road transport a n d highways ministry has got a jump of 51 per cent at nearly Rs 2 lakh crore while the outlay for Railways has increased by 17 per cent to Rs 1.40 lakh crore over RE of FY22. The allocation to the ministry of communications is estimated to increase by 93 per cent or Rs 50,890 crore mainly on account of the capital infusion of Rs 44,720 crore in BSNL. Increased allocation to the road transport and highways ministry is mainly on account of an increase in investment (Rs 1.34 lakh crore for FY23) in the National Highway Authority of India, virtually double of what was invested in RE of FY22.
There are some noticeable reductions as well. Experts in accounting call it a ‘slight of hand’. There has been a whopping 27 per cent decrease in expenditure on subsidies which was pegged at Rs 3.55 lakh crore for FY23. The food subsidy bill has seen a drastic 28 per cent cut at Rs 2.06 lakh crore for FY23. But there is an explanation. A higher level of food subsidy was budgeted in 2020-21 and 2021-22 mainly on account of the Pradhan Mantri Garib Kalyan Ann Yojana, which provided free food grains to the poor to mitigate the impact of Covid-19. Also, a chunk of allocations went towards clearing loans of Food Corporation of India. Similarly, the petroleum subsidy, which consists of subsidy for LPG and kerosene, has seen a reduction of nearly 11 per cent. Why? Because no kerosene subsidy has been budgeted for either 2021-22 or 2022-23. Therefore, the expenditure on LPG subsidy is estimated to decrease by 10.8 per cent to Rs 5,813 crore in 2022-23. Amongst some major schemes, outlays have been reduced for FY23 compared to FY22 on perhaps the assumption that the pandemic will not be a factor. Therefore, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has seen a 25 per cent reduction in allocation (still getting the highest allocation among major schemes at Rs 73,000 crore) while there is a three per cent cut in the Pradhan Mantri Fasal Bima Yojana.
What’s Cheaper, What’s Costlier
Certain goods will become cheaper as the government has slashed the customs duty. These include clothes, camera lens for cellular mobile phones, frozen sea foods including mussels and squids, cocoa beans, methyl alcohol, acetic acid, certain chemicals required for petroleum products, cut and polished diamonds and steel scrap, among others. There was a small relief for diamond traders after import duty cut on cut and polished diamonds to 5 per cent from 7.5 per cent. This has been done to “boost the gems and jewellery sector. Simply sawn diamond would attract nil customs duty,” the Budget documents said. Sitharaman also announced duty concessions on parts of transformer of mobile phone chargers and camera lens of mobile camera module and certain other items. The aim: to enable domestic manufacturing of high growth electronic items.
However, certain products will become costlier after an increase in duty. For example, the customs duty on umbrella has been raised to 20 per cent; exemption to parts of umbrellas are being withdrawn. Also, items including headphones, earphones, loudspeakers, smart meters, imitation jewellery, solar cells and solar modules will become more expensive due to a hike in customs duty on imported parts. Customs duty exemption given to steel scrap last year has been extended for another year and it is set to provide relief to MSME secondary steel producers.
Certain anti-dumping and CVD on stainless steel and coated steel flat products, bars of alloy steel and high-speed steel are being revoked to tackle prevailing high prices of metal in the larger public interest. In order to incentivise exports, exemptions have been provided on items such as embellishment, trimming, fasteners, buttons, zipper, lining material, specified leather, furniture fittings and packaging boxes. At the end, the Budget would be judged for implementation, not for the big-ticket announcements. And that has been a constant challenge before every finance minister. Please leaf through the pages to get more insight into various aspects of the Budget and its impact.
