Budget 2022 pushes electrification agenda

by Brian de Souza 01 Feb 2022


The Union Budget presented by Finance Minister, Nirmala Sitharaman gives a further push to the government’s electrification agenda, a policy intent that it has pushed in the last couple of years. India’s economic growth is estimated at 9.2 percent, the highest among all large economies coupled with a significant hike in capital expenditure. However, the revised fiscal deficit gap is seen expanding slightly to is 6.9 percent Vs the 6.8 percent projected.

With a focus on two and three-wheelers which are expected to be the early adopters of electrification, the government proposed to introduce a policy for battery swapping as well as standardising inter-operability standards for batteries to encourage more buyers to opt for such vehicles. The government hopes that combined with FAME II and the individual policies put out by the states to encourage electric mobility, this will strengthen the country’s green credentials

Apart from the battery swapping policy which is aimed at reducing range anxiety, a concern with potential buyers and which can help a wider move to electrification, the Finance Minister proposed special mobility zones for zero fossil fuel as well as incentives to encourage the private sector to offer batteries as a service.

Green bonds
The Budget also sought to buttress the government’s green credentials and give a push to the decarbonisation of the economy by announcing sovereign green bonds as well as encouraging the use of blended fuel at the petrol pump by levying a Rs 2 per litre tax on unblended fuel, effective October 2022. This will impact those users who may not have access to blended fuel, and it remains to be seen how users in areas where ethanol availability is limited will react.

With regard to clearances for green-oriented projects, the FM proposed a single form to facilitate the clearance of such projects along with upgraded service to include real-time information and project approval updates.

Setting a context to all this, Sitharaman made a reference to the prime minister’s comments at COP26 last November in which India is committed to a net-zero policy by 2070. The FM also spoke about encouraging the move to solar energy which the PLI scheme seeks to strengthen, adding that the government would contribute to R&D in sunrise industries.

As in all previous budgets, the FM spoke about the thrust to road development saying the government plans to add an additional 25,000 km to the national highways network in FY2023 as part of the PM’s Gatishakti National Master plan. The government, she said, would mobilise Rs 20,000 crore via innovative ways of financing to complement public resources.

Multi-modal parks
The Gatishakti masterplan also included announcements on the integration of the postal and railway network, new services under Vande Bharat, as well as announcements on metro, ropeways, improvement in logistics infrastructure. The budget also about boosting infrastructure in the North east as well as the establishment of multi-modal logistics parks at four locations in the country, contracts for which will be given out in FY2023.

The Finance Minister proposed allocation of Rs 100,000 crore to assist the states in catalysing overall investments in the economy through FY2023. These will be in the form of 50-year interest free loans that are over and above the normal borrowings allowed to the states.

From a user point of view, the thrust on infrastructure is good news for the heavy trucks sector, sales of which have been affected in the last 18 months or so, and which would see an uptick as the road building activity gains momentum.

Increased infrastructural activity has spin-off in terms of the consumption of cement and steel which are key inputs.  The construction of new roads is also a cause for the construction equipment sector to cheer. Increased activity will also create more jobs, and in the context of issues over unemployment due to the pandemic, this assumes importance.

No big bang announcements
If there were expectations of a big bang announcements, especially in terms of tax reliefs, there were none. There was no reduction in excise duties on diesel and petrol. While last year’s budget was presented against the background of the farmers’ agitation, overshadowing this year’s was the five states going to the polls, with Punjab and Uttar Pradesh being the key ones, on which attention will be focussed.

In the Economic Survey report tabled a day before the Budget, the agriculture sector was seen growing 8 percent and was untouched by the pandemic. It also mentioned that exports had performed well and had gone past pre-pandemic levels. It also said the vaccination programme of the government would be a key contributor to macro-economic stability.  Quoting the Goldman Sachs report, the Survey had also warned that the supply side disruption to several industries due to the chips shortage, including to the auto sector would be a slow and costly affair.