Union Budget 2022, introduced by Finance Minister Nirmala Sitharaman, strikes a chord with the Prime Minister Narendra Modi's vision to make India a digital superpower, sustainable leader, and healthy nation. The budget strikes a balance between the need to contain economic damage caused by the pandemic through active policymaking and building a strong foundation for the future to support Indian ambitions of achieving the status of global superpower by 2030. Introducing an infrastructure-focused budget, the Union government has made its intention clear of pushing up capital expenditure in areas like sustainability, green technologies, urbanization, and logistics to expedite growth. Given a 35% increase in capital expenditure, the government has focused on pro-growth rather than aggressive fiscal consolidation at the early stage of economic recovery. Moreover, the budget is expected to surpass revenue assumptions to support fiscal consolidation and improve the Tax-to-GDP ratio.

Government Big Betting on Infra

The road to development relies on the country's infrastructure, which forms a major backbone of the economy. Currently, India is a USD3 trillion economy and aims to touch USD5 trillion by 2025, which would require a double-digit growth in almost every sector, from manufacturing to trade, agriculture to FinTech. Pushing investments in infrastructure could pave the way for the booster dose in the Indian economy to enable the country to reach new heights in physical, social, and digital infrastructure.

·         Robust Transportation

The government plans to put India on a high-growth trajectory, opening the purse strings for infrastructural developments with proposed infrastructure spending of over INR 10 lakh crores (USD13.365 billion) in budget 2022-23. Advanced infrastructure would act as a force multiplier for sustained economic growth. Gati Shakti initiative (National Master Plan for Multi-modal Connectivity), one of the cornerstones of the budget, will facilitate last-mile connectivity for the movement of people, goods, and services from one mode of transport to another while reducing travel time. Under the PM Gati Shakti initiative, the National Highways Development Project would be expanded by 25,000 km, 100 new cargo terminals will be developed, 400 new generation Vande Bharat trains with better efficiency will be introduced during the next three years. Focusing on building more roads and railways would help improve the productivity of existing stretches. In contrast, high-speed transport, modernization of stations, and urban transport would expedite the economy impacted by the pandemic. Granting data centers, the infrastructure status is a progressive step toward making India a global hub for data centers since operators can now garner more investor interest and broader access to funds.

• Socio-Economic Development

The Union budget 2022 provides thrust for the social sectors with major emphasis on healthcare, rural development, clean drinking water, and primary and tertiary education. Allocating INR22,38,460 million (USD299 million) for the upliftment of health infrastructure at primary, secondary, and tertiary levels would help relieve the pressure from hospitals and healthcare centers and enhance preventive and curative care for patients. Besides, the budget proposed high spending on rural and urban housing and planning allocating at INR 48,000 crore (USD641 million) for 80 lakh new homes under the PM Awas Yojana aimed towards housing for all. The government is taking pre-emptive measures to allocate digital learning tools and internet access to the poor to reduce the learning gap, widened by the COVID-19 pandemic. Under the government's flagship scheme, "Har Ghar, Nal Se Jal," every rural household must be provided clean drinking water by 2024. Access to safe drinking water would help prevent deaths related to water-borne diseases, the third leading cause of childhood mortality in India.

• Digitally Wise Economy

India has made considerable progress in creating world-class digital infrastructure in the past two decades. Now, the country has the maximum number of internet connections in the world after China. The budget will expedite the country's efforts to become an atamanirbhar digital powerhouse, addressing the questions regarding connectivity through optical fiber and providing consistent access to digital services across rural areas by 2025. The government has planned to support emerging technologies like 5G, whose spectrum auctions would initiate in 2022. Combined efforts on the 5G spectrum, auction, pricing, and local manufacturing would help maximize investments in digital infrastructure and create employment opportunities. Besides, a robust digital infrastructure would lead to faster and seamless public services, enhanced connectivity, and accelerated tangible results.

Major Relief to MSMEs 

The Union Budget 2022 provides a foundation for the 'Amrit Kaal,' which reiterates the government's commitment towards strengthening micro, small and medium enterprises (MSMEs) and boosting the startup ecosystem in the country. Economic disruptions caused by the COVID-19 pandemic drastically impacted small businesses. Thus, they require additional support in terms of gaining wider access to finance, technology, and the market to gain a competitive edge and become a part of global value chains. Hence, the government has planned to provide assistance to MSMEs by extending the Emergency Credit Line Guarantee Scheme (ECGLS) until March 2023 and increasing the outlay of funds to INR5 lakh (USD 6,683) for the beneficiaries. This comes as a great relief for MSMEs, especially in the hospitality and travel & tourism sector.

The government will be extending tax incentives for eligible startups by one more year and improving liquidity for MSMEs serving government organizations. Hence, the investments provide a huge opportunity for small businesses to participate in the dynamic economic ecosystem of the country and innovate to gain a competitive edge in the domestic and international markets. Moreover, the budget supports small businesses in the sunrise sectors like e-mobility, batteries, green technologies, semiconductors, space economy, artificial intelligence, etc.

Sowing Seeds for 'Zero-Budget, Chemical-free' Farming

India's total agricultural land is approximately 158 million hectares, and only 409,000 have been brought under natural farming through a central government scheme, providing a three-year subsidy of INR12,200 (USD 163) per hectare. The budget emphasizes sustainable farming practices, incentivizing investments through public-private partnerships, and leveraging digital infrastructure. Ushering Next Generation Agriculture through digitalization, enhancing R&D activities, leveraging the strengths of agri-techs and Farmer Producer Organizations (FPOs) could have a multiplier effect on growth and competitiveness. PM Gati Shakti's initiative would facilitate smooth mobility of agricultural produce across the country, which would help in reducing wastage. Promotion of chemical-free farming with a special focus on farmers' lands in wide corridors along river Ganga. Fund with blended capital raised under the co-investment model will provide financial support to agriculture, and rural enterprises for farm produce value chain.

Greater infusion of agriculture technologies is crucial to reduce the environmental impact of farming and irrigation activities on soil and water. The budget also emphasizes the promotion of 'Kisan Drones' for crop assessment, digitizing land records, spraying insecticides and nutrients to modernize the farming sector. The use of drones in agriculture is expected to increase the share of agriculture in GDP by 1-1.5%. Additionally, the government has ensured a minimum support price (MSP) for wheat and paddy farmers, announcing an outlay of INR2.37 lakh crore (USD 31.68 billion) towards making direct payments. The move comes after farmers expressed their agitation over demanding MSP for farm produce, which led to the government recalling three farm reform laws in 2021.

New Battery Swapping Policy to Boost EV Ecosystem

India EV market is anticipated to grow at a CAGR of 90% and reach a market value of USD150 billion by 2030. Currently, China leads the EV sector regarding the number of EVs and model variants, vendor ecosystem, charging infrastructure, and battery manufacturing capabilities and India lags in all these aspects. Even though India is the largest two-wheeler and three-wheeler market among commercial vehicles and passenger cars, the country has a negligible share in the global electric vehicle market. Hence, the Union Budget 2022 has reiterated promoting electric vehicles in public transport and creating special mobility zones for EVs and allocations under the FAME-II scheme.

The new battery swapping policy would allow EV vehicle users to swap out the discharged batteries with a fully charged one, which is a lot quicker than charging DC fast charging cycles. In a way, the policy will provide a solution to the inadequate charging infrastructure, one of the challenges for low EV adoption. Besides, the inclusion of energy storage systems will facilitate easier credit availability and affordable financing for the EV segment, reduction in customs duty and production costs, and overall EV costs. However, the battery swapping policies are likely to benefit both two-wheeler and three-wheeler EV models and selected brands.

Enhanced Focus on Digital Financing

The banking sector has been registering significant growth with the improvements in capital adequacy ratio and reduction in non-performing assets. The capital to risk-weighted assets ratio (CRAR) of scheduled commercial banks (SCBs) rose to 16.54% in September 2021 from 15.84% in September 2020. The budget has proposed setting up 75 Digital Banking Units in 75 districts across the country. The move could help banks improve access to liabilities pools from newer consumers. Additionally, the budget proposes integrating 1.5 lakh post offices in India into the core banking system, which would enable financial inclusion and access to post office accounts through net banking, mobile banking, and ATMs. Connecting post-offices to the core banking system has its ideological genesis in the National Mission for Financial Inclusion, which intends to offer universal banking services for every unbanked household.

The government plans to digitalize currency to boost the digital economy, leading to a cheaper and more efficient currency management system. Central Bank Digital Currency (CBDC) launch will be authorized by the Reserve Bank of India in the FY2022-23. The digital rupee can have many applications such as programmable payment for subsidies by financial institutions, quicker lending and payment, easier overseas transactions without a third party or a bank, transparent and authentic records, and more. Meanwhile, the government has also planned to put a hefty tax (30%) on the transaction of digital assets. This comes as a huge shock for people trading cryptocurrency and Non-Fungible Tokens (NFTs) as it can largely impact their profits. Besides, the government has also provided TDS on payments made in relation to the transfer of digital currencies to capture the transactional details. The move comes amidst the government's plan to introduce a bill to ban private cryptocurrencies in India. 

Increased Focus on Energy Transition & Clean Energy

In light of India's commitment to the COP26 Glasgow summit for rapid energy transition, the Finance Minister, Nirmala Sitharaman, extensively emphasized the rapid adoption of clean energy through different schemes. These schemes are intended for encouraging domestic manufacturing of solar power equipment, battery swapping, decentralized renewable energy, deployment of biomass pellets in thermal stations, and conversion of coal into chemicals for meeting industrial needs of reducing carbon emissions. Domestic manufacturing of high-efficiency PV modules with the financial support of INR19,500 crore (USD260 million) will help to boost India's solar market and industry. The government is also keen to encourage R&D initiatives in the clean energy sector, pushing investments in futuristic green hydrogen technologies. Providing decentralized renewable energy to the North-Eastern region under the Vibrant Villages Programme would further help to strengthen the clean energy movement in India. The renewable energy industry is optimistic about the provisions to be introduced in the National Hydrogen Policy to make India a global manufacturing hub for electrolyz

Conclusion

Investments in productive sectors are crucial to unlocking the true potential of the Indian economy. The Budget announcements align with the government's vision of making India self-reliant and sustainable. Targeting the growth opportunities in tech and green industries, the government is pushing towards harnessing the momentum that has made India the fastest-growing economy.