The Union Budget for FY23 was presented amidst a backdrop of uncertainty owing to the renewed Covid-19 outbreaks, a pandemic-scarred informal sector, and a cooling global growth.
The FY23 Union Budget focused on credible revenue projections, continued fiscal consolidation and clear capital expenditure spending in the coming fiscal.
It laid the roadmap on reviving sustainable growth through capital formation and provided fiscal stimulus to achieve the goal of:
Growth and all inclusive welfare. Promoting technology enabled development, energy transition and climate action. Virtuous cycle starting from private investment, crowded in by public capital investment.
Budget Estimate (BE) Expense revised to Rs 34.87 trn from Rs37.70 trn Revised Estimate (RE) for FY22.
A) Taxation:
a) Provision for taxpayers for to file an Updated Return on payment of additional tax within two years.
b) Reduced alternative minimum tax for cooperatives have been reduced from 18% to 15% to be at par with corporate tax of 15%. Surcharge has also been reduced from 12% to 7%.
c) Parity between state and union govt employees ‒ NPS contribution of state government employees has been brought to parity with central government employees at 14% deduction.
d) Any income from transfer from virtual digital assets taxed at 30% - only cost of acquisition is deductible. Loss can’t be set off against anything else. TDS for payment made at 1% for considerations above a threshold. Gifts of such assets also to be taxed at hands of recipients.
e) GST Collection of Rs. 1.49 trn collection for Jan’2022 (latest data) vs Rs. 0.92 trn collection in June 2021.
f) The direct tax growth is also assumed conservatively at 5.5% of the GDP compared to pre-pandemic 3-year average of 5.7% (FY18-FY20), while indirect tax is estimated to slip from 5.4% as per FY22 RE to 5.1% of the GDP, reflecting a limited upside from excise tax given the high crude prices.
B) Infrastructure and Industrials:
a) Allocation to solar manufacturing PLI increased from ₹45 billion earlier to ₹240 billion (i.e. ₹195 billion of additional allocation).
b) PM Gatishakti to encompass the 7 engines for multi-modal connectivity for the states with speedier implementation of development projects through technology to facilitate faster movement of people & goods.
c) Road transport ‒ FY23: plan will be formulated, 25,000 km expansion in national highways, Rs. 200 Bn to be raised by innovative financing. The target of 25,000 kms of National Highways construction next fiscal is very ambitious as it is 29% more than what was constructed in the past two fiscals ‒ 6,185 kms in the first 9 months of this fiscal, and 13,200 kms in fiscal 2021.
d) Removal of concessional basic customs duty on capital goods imports to encourage domestic manufacturing of capital goods. New project imports for projects in power (incl. solar and nuclear), coal, gas, iron ore, water supply and warehousing will attract 7.5% basic custom duty from September 2023.
C) Micro Small & Medium Enterprises (MSMEs)
a) Emergency Credit Line Guarantee Scheme (ECLGS) has been extended to March 2023 for 13Mn MSMEs. The guaranteed cover has been expanded to a cumulative amount of ₹5 trillion. This will incrementally help in managing the asset quality of MSME loan books of banks.
b) MSMEs such as Udyam, e-shram, NCS & Aseem portals will be inter-linked, their scope will be widened.
c) Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme to be revamped ‒ additional credit of Rs. 2 trn for MSEs.
d) Raising & Accelerating MSME Performance (RAMP) programme ‒ outlay of Rs. 60 bn over 5 years ‒ developing resilience, competitiveness, and efficiency.
D) Education
a) 'One Class One TV Channel' program of PM eVIDYA will be increased from 12 to 200 TV Channels to provide supplementary education in regional languages for class 1-12.
b) A digital university will be developed to provide access to students for world-class quality education with ISTE Standards.
E) Health:
a) National Tele-Mental Health program‒ 23 centers of excellence with NIMHANS as nodal center and IIIT, Bangalore for tech support.
b) Digital health portal to be rolled out.
F) Oil and Gas:
Petroleum subsidy (largely for LPG) budgeted at ₹58 billion for FY23 vs revised estimate of ₹65 billion for FY22 (the original budgeted amount for FY22 was ₹141 billion). Given the volatility in crude, this may require continued pass-throughs by OMCs in case of sharp increase in crude prices.
G) Agriculture, Chemicals & Fertilizers:
a) Rationalized and comprehensive scheme to increase production of oil seeds.
b) Nationwide branding of millets & digitization of land records.
c) Ken-Betwa Rs. 446 bn link project ‒ to provide 900k hectares of farmland irrigated. This will be taken up in FY23.
d) The fertilizer subsidy for FY23 BE has been brought down to ₹1052.22 billion, down 25% vs FY22 RE of ₹1401.22 billion – the subsidy provisioning looks to be on the lower side given the higher raw material scenario.
e) There has been a reduction in the basic custom duty rates on few inputs like acetic acid, methanol, EDC, VCM – this would be beneficial for amine-based manufacturers as well as PVC manufacturers.
H) Digital Finance:
a) 1.5 lac post offices to be integrated into core banking system. Financial support for digital payments ecosystems in previous Budget to continue.
b) Digital Rupee ‒ introduction of central bank digital currency (CBDC) to done in FY23.
I) Telecom :
a) Spectrum auctions for 5G in FY23. Scheme for design led manufacturing for 5G as part of PLI scheme.
b) 5% of annual collections under universal service obligations fund for R&D and commercial of technology.
J) Special Economic Zone [SEZ] Act:
a) SEZ Act to be replaced which allowed states to become partners ‒ covering all large existing and new industrial enclaves.
b) Reforms in customs administration of SEZ to be implemented by September 2022 ‒ fully IT driven and functioning on National IT portal of customs with risk based checks in place.
K) Defense:
a) 65% of defense procurement has been reserved for domestic companies.
b) Defense R&D to be opened for startups, academia etc., along with SPV model for defense development.
L) Energy transition and climate change:
a) 280 GW solar power capacity by 2030 goal.
b) Additional allocation of Rs. 195 bn for PLI for high efficiency modules, with priority to fully integrated manufacturing. Action plan for end-of-life vehicles, toxic and hazardous waste, oil waste etc. ‒ total 10 such issues to be developed.
c) 5-7% biomass pellets to be co-fired in thermal plants to reduce carbon emissions and boost farmer income. 4 pilot projects for coal gasification to decide technical and financial viability.
d) Focus on electric vehicle policy going ahead with focus on battery swapping policy, inter operability and special mobility zones for electric vehicles.
M) Ease of doing business:
a) Insolvency & Bankruptcy Code (IBC) amendment to facilitate cross-border insolvency cases.
b) Paperless e-bill system to be launched for ministerial procurements.
c) Use of surety bonds as a substitute of bank guarantees for government procurements.
N) Incentives for start-ups:
a) Concessional tax regime of 15% for newly incorporated domestic manufacturing companies ‒ last date for commencement of manufacturing has been extended by 1 year to 31 Mar 2024.
b) LTCG on listed equities liable to maximum surcharge of 15% while other LTCG are subjected to a graded surcharge up to 37%. Gains on transfer of any type of assets has been capped at 15% for all to boost startups along with the above mentioned concessions.
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