Impact of Budget 2022 on key sectors

By Dhaval Kapadia |  01-02-22 | 
 

Finance Minister Nirmala Sitharaman presented Union Budget 2022, and the focus area can be split into four sections:

  1. PM GatiShakti – Infrastructure development
  2. Inclusive Development
  3. Productivity Enhancement & Investment, Sunrise Opportunities, Energy Transition, and Climate Action
  4. Financing of Investments
  • Government Capital Expenditure identified as key driver of economic growth expected to spur private capital investment

The outlay for capital expenditure in the Union Budget is 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. This has increased to more than 2.2 times the expenditure of 2019-20. This outlay in 2022-23 will be 2.9% of GDP. Production Linked Incentive Scheme (PLI) with allocation of Rs 19,500 crore, introduced for Solar Power for manufacture of high efficiency modules, with priority to fully integrated manufacturing units from polysilicon to solar PV modules.

IMPACT: Boost sectors related to capex such as roads, cement, capital goods, solar power, etc.

  • Telecom

Required spectrum auctions will be conducted in 2022 to facilitate rollout of 5G mobile services within 2022- 23 by private telecom providers. A scheme for design-led manufacturing will be launched to build a strong ecosystem for 5G as part of the Production Linked Incentive Scheme (Rs 538 crore).

IMPACT: Boost to 5G technology, quantum of spectrum fees and ability of telecom companies to bid for auction will be watched.

  • Boost for domestic defence equipment manufacturing

Around 68% of the capital procurement budget will be earmarked for domestic industry in 2022-23, up from 58% in 2021-22. 

  • Emergency Credit Line Guarantee Scheme (ECLGS)

It will be extended up to March 2023 and its guarantee cover will be expanded by Rs 50,000 crore to a total cover of ` 5 lakh crore, with the additional amount being earmarked exclusively for hospitality and related enterprises.

IMPACT: ECLGS has been a boon for MSMEs helping them tide through the pandemic. Extension of the scheme and increase in guarantee cover particularly for contact intensive sectors heavily impacted by the pandemic will provide essential support.

  • Inclusive development

Current coverage of Har Ghar, Nal Se Jal is 8.7 crore. Of this 5.5 crore households were provided tap water in the last two years itself. Allocation of INR 60,000 crore has been made with an aim to cover 3.8 crore households in 2022-23. In 2022-23 80 lakh houses will be completed for the identified eligible beneficiaries of PM Awas Yojana, both rural and urban. The Budget has allocated Rs 48,000 crore for this purpose.

IMPACT: Improve living standards of rural / lower strata and boost housing and associated sectors.

  • Digital Rupee

Introduction of Central Bank Digital Currency (CBDC) will give a big boost to the digital economy. Digital currency will also lead to a more efficient and cheaper currency management system. Proposal to introduce Digital Rupee, using blockchain and other technologies, to be issued by the Reserve Bank of India starting 2022-23.

  • Scheme for taxation of virtual digital assets

Any income from transfer of any virtual digital asset shall be taxed at the rate of 30%. No deduction in respect of any expenditure or allowance shall be allowed while computing such income except the cost of acquisition. Further, loss from the transfer of virtual digital asset cannot be set off against any other income. Further, in order to capture the transaction details, I also propose to provide for TDS on payment made in relation to the transfer of virtual digital assets at the rate of 1% of such consideration above a monetary threshold. Gift of virtual digital asset is also proposed to be taxed in the hands of the recipient.

IMPACT: May have a negative impact on the trading volumes of Cryptos. Positive move to curb/control retail participation in the crypto segment.

  • Financial assistance to states for capital investment

Budget has allocated Rs 1 lakh crore to assist the states in catalysing overall investments in the economy. These fifty-year interest-free loans are over and above the normal borrowings allowed to the states.

IMPACT: Further boost to capex at a state level. Capex related sectors would benefit. May help reduce market borrowings by states and lower interest burden.

  • Fiscal Deficit

The revised Fiscal Deficit in the current year is estimated at 6.9% of GDP as against 6.8% projected in the Budget Estimates. The Fiscal Deficit in 2022-23 is estimated at 6.4% of GDP.

IMPACT: higher than expected government borrowing programme (budgeted net market borrowing for FY22-23 at Rs 11.69 lakh crore vs Rs 8.76 lakh crore for FY21-22), negative impact on government bond yields. RBI may need to re-introduce measures such as OMO purchases, etc. to manage yields. The 10-year benchmark Gsec yield may continue to trade at elevated levels in absence of any intervention by RBI. Upcoming RBI monetary policy release on February 9, will be closely watched for the committee’s views on the budget and any measures to manage yields.

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