Budget 2022 Analysis: Major Announcements and their Impact

Budget 2022

Budget 2022: The government has continued to follow an expansionary fiscal policy to fund the economic recovery post Covid-19. The budget has estimated a higher fiscal deficit as well as lower disinvestment, but the new borrowings might help the government in managing its finances.

Macro Highlights

Fiscal deficit for FY22 pegged at 6.9% of GDP. Target set at 6.4% for FY23

Analysis: Amid Covid-19 pandemic & expansionary fiscal policies, the budgetary deficit is posited to rise steeply. The fiscal deficit target for the upcoming fiscal has been set lower than the ongoing fiscal year. Notably, the fiscal deficit for the current financial year is still higher than analyst estimates of about 6.1%. 

The government seems to have taken the suggestions of the Economic Survey calling for a continued expansionary fiscal policy to ensure that growth returns to pre-Covid levels. The government forecasts the deficit to narrow to 4.5% by FY26. Meanwhile, India’s GDP growth forecast at 9.2% in FY22 also comes as a positive sign for the economy. 

Government's divestment target for FY23: Rs 65,000 crore

Analysis: To manage the fiscal deficit, the government has set a disinvestment target of Rs 65,000 crore. The targeted number is much lower than the target of Rs 1.75 lakh crore last year. For perspective, the government has raised just Rs 12,029 crore in asset sales so far in this financial year. The government has met its divestment target only twice in the last 11 years.

To achieve the above target, the government will rely on the strategic sale of BPCL and LIC (these are unlikely to close in FY22). Further, it will rely heavily on borrowings. The government is planning to sell bonds worth about Rs 15 lakh crore in FY23. Net borrowings for FY23 are estimated at Rs 11.2 lakh crore. Sovereign Green Bonds will also be a part of the government's borrowing programme in FY23 to help reduce carbon intensity of the economy.

Also read: Will FM be able to balance growth and fiscal deficit?

For middle class and taxpayers

No changes in income tax slab rates

Contrary to expectations, Budget 2022-23 has not provided any income tax relief to taxpayers. There have been no changes in income tax slabs or rates. Standard deduction for the salaried and pensioners also remains the same as before. Luckily, there have been no negative surprises either.

Cryptos to be taxed at 30% 

Analysis: The Finance Minister has announced taxation on gains arising from the sale of virtual assets at a flat rate of 30%, without any deductions to be allowed on these gains. TDS at a rate of 1% will also be levied on payments made on transfer of digital assets. 

The announcement has been welcomed by crypto exchanges in India, as it provides clarity on taxation of cryptos. However, the consensus remains that the rate of 30% is very high. 

File updated ITR in 2 years 

Analysis:  Taxpayers can file updated ITR within two years of the relevant assessment year. This is a new provision that will ensure voluntary tax filing and reduce litigation. However, an additional tax of 25% to 50% on the tax and interest due on the additional income will be payable by the taxpayers in this case. Currently, an individual gets time till December 31 (unless extended by the government) of the relevant assessment year to file a revised ITR. The newly introduced amendment provides taxpayers two additional years from the end of the relevant assessment year to file their correct updated ITR. 

Increasing tax deduction limit on employer’s contribution to NPS account of state government employees 

Analysis: State government employees  will be able to claim a tax benefit of 14% on the NPS contribution made by their employer from FY23 onwards. So far, only central government employees were eligible to claim tax benefit of 14% for employer’s contribution to the NPS account of an employee. In the case of private sector employees, the tax benefit was limited to 10%.

100% of India’s 1.5 lakh post offices will be on-boarded on the core banking system in 2022 

In 2022, all 1.5 lakh post offices will come under the core banking system enabling financial inclusion and access to accounts through net banking, mobile banking, ATMs, and also provide online transfer of funds between post office accounts and bank accounts. This will be helpful, especially for farmers and senior citizens in rural areas, enabling interoperability and financial inclusion. 

These were our pre-Budget expectations for Salaried Investors


The announcements of Extending ECLGS with focus on hospitality and related enterprise,   comes as a major positive for the industry, which has been dealing with the economic impact of the pandemic. Further, the Centre said Credit Guarantee Trust for Micro and Small Enterprises scheme would be revamped with required infusion of funds. This would facilitate additional credit lines of up to Rs 2 lakh crore for Micro and Small Enterprises and expand employment opportunities. 

Other major highlights

Introduction of Digital Rupee

Analysis: The Reserve Bank of India (RBI) will introduce a digital currency based on blockchain technology in FY23. The move is expected to boost the country’s digital economy and will help in creating a cheaper and more efficient currency management system. The details regarding the name of this currency is yet to be announced. 

Battery swapping policy for EVs

Analysis: The battery swapping policy is being announced in consideration of the space constraint in urban areas for the setting up of charging stations. Battery swapping is a process through which a private EV owner can exchange a depleted battery for a fully charged one, without having to wait for the battery to reach 100% charge.

Introduction of e-passports

The issuance of e-passports will be rolled out in 2022-23 to enhance convenience for citizens. While an e-passport looks just like a regular passport, it comes with a small electronic chip. The microchip is expected to store the information that is printed on the passport, such as name, date of birth, address, parents' names, and other details.

Major announcements in the Education Sector

Major announcements in the defence sector

Infrastructure spending 

The government has announced heavy outlays for Railways, Roadways, Ports, Energy etc. All of this together is expected to boost infra development in the country. The tables below show the allocation to various sectors. 


Overall: Positive 

Overall, the Budget has given priority to more fiscal support and spending with the hope that the resultant economic growth will offset the negative impact stemming from a higher deficit. The slew of measures announced for infrastructure and rural development should help to bring the economy back on track. While the taxpayers would have liked an increase in 80C limit or rationalisation of LTCG taxes, no negative surprises such as new surcharges comes as a relief for the taxpayers. The market seems to have given a thumbs up to the Budget, sustaining gains made in early trade. Measures such as a massive ramp-up in capex, focus on healthcare and infrastructure, tax SOPs for MSMEs, digital rupee came as major positives, among others. The fiscal deficit targets as well as the budgeted receipts and expenditures are in line with street expectations.