Here’s why government increased capital expenditure in Union Budget 2022

Are you looking for the answers to the questions related to higher capital expenditure announced in the Union Budget 2022, sale of Air India, tax on cryptocurrency and initial public offering (IPO) by Life Insurance Corporation of India? Government of India’s senior officials, including finance secretary TV Somanathan, revenue secretary Tarun Bajaj and DIPAM secretary Tuhin Kanta Pandey, cleared the air at India Today Budget Roundtable 2022.

In an interaction with Siddharth Zarabi, managing editor, Business Today TV, Somanathan said that capital expenditure of Rs 1 spent by the government add somewhere between Rs 2-3 to gross domestic product (GDP) over 1-2 years. On the other hand, revenue expenditure like cash transfer adds somewhere between Rs 0.90-0.99 to GDP.

Finance minister Nirmala Sitharaman while presenting the Budget on February 1 announced an increase of 35.4 per cent in the capital expenditure outlay to Rs 7.50 lakh crore.

“We are not distributing cash but we are spending a lot of cash which gets into people’s pocket. Government infrastructure spending will provide the best amount of cash in everyone hands and economy,” said Somanathan.

Tarun Bajaj added that the multiplier effect of capital expenditure is much more than revenue expenditure. “GDP to grow if we push more capital expenditure,” he said.

While commenting on the much-awaited IPO of LIC, Pandey added that the great IPO is slated for March. The draft red herring prospectus will be filed with the market regulator Securities and Exchange Board of India (SEBI) this week.

The government's receipts from disinvestment proceeds in the next financial year beginning April have been pegged at Rs 65,000 crore, lower than the current year's estimated mobilisation of Rs 78,000 crore.

Also Read: Budget Roundtable Live Updates: Reinforcing formula of public investment in infra building, says Sitharaman

With budgeted disinvestment targets rarely being met, the finance minister’s fourth Budget drastically reduced the receipts to an achievable Rs 78,000 crore in the current fiscal, from Rs 1.75 lakh crore budgeted earlier.

Pandey also shared his views on Air India, which is handed over to the Tata Group after 67 years. The Tata group had founded Air India as Tata Airlines in October 1932. The government nationalised the airline in 1953.

He explained that the deal will save taxpayers money. “Most of Air India debt was government guaranteed. It was like sovereign debt in one sense. If Air India has failed to pay then the government had to pay. It was different which was not committed. We came out for open bidding. Our bid parameters were to bid for equity and debt together as enterprise value put together. It was a debt that was obtained from the bid. Going forward we don’t have to pay Rs 20 crore a day. It is a big saving for tax savers money,” Pandey said.

While commenting on taxation on cryptocurrency, Bajaj added that cryptocurrencies or digital assets were always taxed. The government only brought certainty to taxation.  

In her Budget speech, the finance minister proposed a 30 per cent tax on virtual digital assets with no deductions allowed. Moreover, there will be tax deducted at source (TDS) of 1 per cent above the threshold limit. This means that going forward one needs to pay a flat 30 per cent tax, the way winnings from lotteries and game shows are taxed, on profits earned from virtual assets including cryptocurrencies and Non-Fungible Tokens or NFTs.

On the other hand, Somanathan added that blockchain technology existed not only because of crypto assets. It is a separate technology. It can exist without crypto assets. “We are already using blockchain technology. There are other uses of blockchains. Connecting blockchain technology with cryptocurrency is not correct,” he said.