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Union Budget 2022, Explained

Feb 1, 2022 5:04 PM 6 min read

The classical Union Budget looked something like this:

Hello, salaried people! Here are the changes in your income tax this year. Now, please go back to work so that you can earn enough to pay it.

Over the years, however, other numbers and policy imperatives now find mention in this annual ritual, perhaps indicating that the Budget is as much a political document as it is an economic one. 

We bring you this year's digest right here. (Link to the Full Text.)


Budget Bytes

This year's Budget speech was short and sweet, especially for fiscal spendthrifts.

Here are the sector-specific highlights and numbers which found the most notable mentions:


  • The capital expenditure target of the Government has increased to ₹7.5Lcr ($110.3bn) - by 35.4% YoY
  • The Emergency Credit Line Guarantee Scheme (ECLGS) cover expanded to ₹5Lcr ($66.9bn) 
  • FY23 divestment target is pegged at ₹65,000cr ($8.7bn)


  • Income from digital asset transfers will be taxed at 30%
  • Alternate Minimum Tax for cooperative societies will be cut to 15%
  • Tax deduction limit increased to 14% on employers' contribution to the NPS account of state government employees
  • Surcharge on long-term capital gains capped at 15%


  • National highway network to be expanded by 25,000 km during FY22-23
  • 400 new Vande Bharat trains will be introduced. 2,000 km of rail network will be brought under the indegenously-developed anti-collision technology KAWACH
  • 100 more PM Gati Shakti terminals to be set up in the next three years. (What is the Gati Shakti Yojana?)
  • In the defence sector, 68% of capital will be earmarked for the domestic industry (up from 59% last fiscal)
  • Contracts for laying optical fibre in villages will be awarded under the BharatNet project under the PPP mode


  • Government will pay ₹2.37Lcr ($31.7bn) towards procurement of wheat and paddy under MSP operations
  • Kisan drones will be introduced for facilitating crop assessment, land records, insecticides spraying etc.
  • The Ken-Betwa river linking project worth ₹44,605cr ($5.9bn) was announced

MSMEs and Startups

  • Over the next five years, a ₹6,000cr ($801.3m) RAMP (Raising and Accelerating MSME Performance) programme for MSMEs will be rolled out
  • MSMEs like Udyam, e-shram, NCS and Aseem portals will be interlinked and now perform with live organic databases
  • Existing tax benefits for startups under which redemption of taxes was offered for three consecutive years, will be extended by one year

Housing and Urban Planning

  • ₹48,000cr ($6.4bn) has been allocated towards the PM Awas Yojana. A target for identifying 60,000 new houses and completing 80 lakh houses for construction has been set as part of this affordable housing scheme this year
  • ₹60,000cr ($8bn) allocated to provide tap water connections to 3.8 crore households in 2022-23

Banking and Finance

  • A "Digital Rupee" will be rolled out by 2023
  • 75 digital banks in 75 districts will be established by scheduled commercial banks to promote digital payments
  • ALL of the 1.5 lakh-odd post offices in the country will be brought under the core banking system to enable financial inclusion and access to accounts through internet and mobile banking

Climate and Net Zero

  • Sovereign green bonds will be part of GoI's borrowing programme in FY23 (what are they?)
  • An additional ₹19,500cr ($2.6bn) has been allocated for the PLI manufacturing of high-efficiency solar modules.
  • Four pilot projects for coal gasification will be set up
  • A policy for battery swapping is to be framed to allow EV charging for automobiles (more on swapping here)


What Will the Finance Bill Do?

Let's start with the gigantic capex bill. When the Government raises spending by a third on an annual basis, it indicates two things. 

One, there is a lot in the coffer to spend, which isn't surprising in light of the favourable finances and the upshot in tax earnings at present. Two, rising fiscal deficit. A higher-than-expected spending means wider berths given to the centre and the states for making capital investments.

Case in point: Financial assistance to states for capital investments has been set at ₹1Lcr ($13.3bn). 

Now, optimists may look at it as a pro-growth move which is intended to steer a post-pandemic recovery ship cruise at full steam ahead. But it comes at the cost of exercising fiscal prudence, especially at a time when the pandemic-time monetary fuelling of major global economies is coming to an end (how?). 

When it comes to disinvestment receipts, however, GoI has scaled down the revised estimate (current year) to ₹78,000cr ($10.4bn) as opposed to the ₹1.75Lcr ($23.4bn) at the Budget estimate level. This has been received by the markets in a rather patchy way as observed by the see-saw effect in the benchmark indices today. Given the recently-concluded handover of Air India to the Tatas and the impending mega-IPO of LIC, it seems that one major entity that may not be headed towards the disinvestment wave this year is BPCL, given the ongoing irregularities in its monetisation. 

The major income tax slabs have remained unchanged this year despite the drawing out of Government expenses. This basically hints at the expansionary nature of the Budget which predicts that Government borrowing will shoot up to ₹14.95Lcr ($200.1bn) from the estimated ₹12Lcr ($160.6bn) limit.

But the most headline-grabbing Budgetary development this year was with regard to digital currency. The Finance Minister's announcement that digital currencies will now fall under the tax bracket has brought a partial end to the long-brewing conundrum of cryptocurrency regulation in India. Plus, the intention of the RBI to launch a "Digital Rupee" in 2022 has made it the latest entrant to the club of central banks courting the CBDC dream. 

Although it is a good start for digital currency regulation, it comes with certain downsides for investors. Along with a 30% income tax on digital currency transfers, there are a) no set off in losses allowed b) no deduction in income allowed except in the cost of acquisition, and c) recipient taxes for cryptocurrency gifts. So much Budget catch-2022 for crypto! 


Expectations versus Reality

As far as across-the-board-bullishness goes, we are gladdened by the fact that most of OUR expectations from the Budget 2022 were right on the money.

Increased Government spending, check. Massive infrastructure push, check. A CBDC "knocking on our doors", check. GoI leaning towards crypto regulation, check. Boost for battery swapping tech, check!

Having said that, despite its growth-oriented drawing to scale, the Budget may have missed some important nodes. There were no provisions for the oil and gas industry, a sector that is ever-so-sensitive, particularly now with OPEC+ coalition's mercurial policies and the Russia-Ukraine crisis standing to tip it over at any moment. (For the record, ATF prices were hiked by 8.5% - highest since 2008 - merely hours before the Budget.)

An estimated growth rate of 9.2% (supposedly highest among all the large economies) has also been touted as "unrealistic" by many experts given the hangover from another pandemic year, which may be prone to recurrent economic setbacks from successive COVID variants. Real growth may also be slower than predicted, owing to inflationary pressures.

The policy of leaving income tax slabs untouched is also something that could have come as a disappointment to middle-income salaried groups, who wished to bring down the individual income tax rate slabs in line with the corporate tax rate. There was also no increase in the annual limit of ₹1.5L ($2,007) under Section 80C income deduction that is available for investments and payments. This is particularly aggravating for individuals who had looked forward to allocating more corpus for their investment returns. 

FYI: The highest slab rate for an individual taxpayer in India is currently at 42.774%.

All in all, given the capital-intensive character of the Budget, major growth overdrives are expected across various sectors. Launch of a blockchain-based Digital Rupee, the 5G spectrum auction, the big-ticket market debut of a state entity and E-passports with embedded chips - A LOT to look forward to this year!

Oh, and congratulations to 2023 on being declared the International Year of Millets! :)


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