Budget insights: Interim Budget 2019

The thrust on social infrastructure, ease of living, and technology led governance for inclusive, equitable growth is a welcome move. India would continue to need more structural, policy and economic reforms to become a USD 5 trillion economy in the next five years. There is a considerable ground to be covered and this Budget has set the tone for future discourse.

As expected, there is populism in the Budget, but with the fiscal deficit stated to be contained at 3.4%, prudence has prevailed. Along with new schemes like PM Kisan Samman Nidhi and PM Shramyogi Maandhan Yojana that have the greater good intent, the tax sops given to the middle class and salaried employees makes it a friendly budget. The vision to create a tech enabled taxpayer friendly tax department is a welcome initiative.

It's interesting to see that a growth of around 20% has been projected on Central GST collections in 2019-20 over the current year, whereas the overall growth in collection in 2018-19 has been around 8% over 2017-18. Achieving this ambititious growth target would call for substantial expansion in tax base, requiring stringent measures to plug the tax leakages.

Raising TDS threshold for interest and rental income should be welcome to passive income earners, such as senior citizens.

Eliminating tax on the notional income of second self-occupied house and allowing capital gain exemption on investment in the second house were much needed rationalisation and should rejuvenate interest in real estate.

The Budget in its vision for the next decade continues to focus on leveraging technology for solving large societal issues. There is a renewed focus on using technology for energising sustainable employment through Digital India program and catalysing start-ups and entrepreneurs at grass root level, use of precision farming and other technology interventions for achieving self-sufficiency in food, emphasis on electric vehicle and renewables for reducing carbon footprint and energy security and expanding rural industrialisation using digital technologies. The vision further strengthens the opportunity for India to improve the public service delivery system by utilising the advances India has already made in e-Governance over past few years like Digital Payment, Digital Locker, UPI, e-Sign etc. and by investing further in this space.

The Budget articulates continued focus on renewable energy, rural electrification and energy efficiency. This continuity and commitment is the key for a capital-intensive sector and, now with a rapidly growing retail demand, the sector could experience renewed growth.

The vision articulated by the government suggests that new programs on energy storage, energy security, and electric mobility are on the anvil. This will spur new entry and innovation in the sector. 

The government's vision for the Blue Economy could drive renewed interest and investment into offshore wind, and strengthen transmission connectivity along extended coastal areas.

The allocation to Ayushman Bharat has been tripled which reinforces the commitment towards Universal Healthcare for all citizens and the vision for a healthy India by 2030. However, to spurn demand from the middle classes increased deduction towards medical insurance premium under section 80D could have been considered. Zero rating of GST for the sector would also have helped catalyse investment in the delivery space.

The government has acknowledged need for reforms in upstream industry to overcome the issue of significant energy import dependence. Pure exploration contracts are appearing to be issued, which will be new dimension to India's E&P sector.

The budget speech did not mention any plan about bringing petroleum products and gas into classical GST. The sector fears being left behind in benefit of GST reform for a few years now.

The focus on uplifting rural and agrarian income will have a positive impact on the tractors, 2 wheelers and light commercial vehicle segment. Income tax relief on income upto INR 5 lakh will increase the disposable income for middle class families. This should translate into positive demand momentum for 2 wheelers and small cars in Q1 FY2020. By highlighting adoption of electric vehicle as one of the 10 key dimensions for cleaner air, the Government has restated its intent to drive electric mobility forward. However how will this be translated into specific policy measures will need to be examined further.

Infrastructure continues to be the critical backbone which will help deliver on various social and economic objectives. The growing emphasis on Ease of Living will require wide ranging urban infrastructure to address issues like housing and transport, as also air quality and accessibility. Rural industrialisation is key to linking farm sector with industry, and will need logistics infra to be significantly upgraded. The budget will not be able to continue to fund all of these, too far in the future. Going forward, it will be important to take measures to improve the country's credit rating, and attract more long-term foreign capital into infrastructure.

Pradhan Mantri Shramyogi Man Dhan Yojana seems to be an extension of the existing Atal Pension Yojana (APY). While APY was meant for workers in the unorganised sector, the new scheme includes marginal wage earners from organised sector as well. Another difference is the upper age limit of 60 years in the new scheme as against 40 years in APY. It is a welcome move and would further provide social security to a larger number of marginal wage earners in the country. Being contributory and designed in line with National Pension Scheme, this also makes economic sense.

The move to provide 2-5% interest subvention for farmers struck by natural calamities is a protective measure, especially for a small and marginal farmer. A marginal farmer earns around INR 40,000 per ha. Most farmers also avail crop loan through Kisan credit card (KCC). In case of a natural disaster, his income reduces by 50% or more. This move will motivate the farmers to adopt bundled insurance coverage and avoid indebtness of farmers.