This year budget focus remains on the ease of doing business,incentives for Startup, Housing for all, agriculture, improvement and development of infrastructure. Despite a moderation in real G
DP growth by 40 basis points in 2018-19 over 2017-18, Indian economy remained the fastest growing major economy along with macroeconomic stability. Consumer price inflation was within the targeted limits set by the monetary policy committee of RBI. Current Account Deficit increased from 1.9% of GDP in 2017-18 to 2.4% in April-December 2018-19. India has emerged as an important player in the world and the medium term growth prospects of the economy are bright mainly on the back of the important structural reforms initiated in the last few years.
Highlights of the Budget:
Infrastructure:
- Bharatmala – develop national road corridors and highways
- Sagarmala – enhance port connectivity, modernization and port-linked industrialization
- UDAN – providing air connectivity to smaller cities and stating that it is right time for India to enter into aircraft financing and leasing activities from Indian shores
- FAME Scheme to encourage faster adoption of Electric vehicles
- For the development of Inland Cargo, under Jal Marg Vikas Project more terminal projects to be launched
- Railway Infrastructure to have an investment of 50 lakh crores between 2018-2030
- Power connectivity – One Nation, One Grid – that has ensured power availability to states at affordable rates
Measures for MSMEs:
- Loans upto 1 crore for MSMEs within 59 minutes through a dedicated online portal
- Rs. 350 crore has been allocated for FY 2019-20 for 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans
- Pension benefit to 3 cr retail traders having turnover of less than Rs. 1.5 cr, under new scheme Pradhan Mantri Karam yogi Maandhan scheme.
Direct Taxes:
- Tax rate reduced to 25% for companies with annual turnover up to Rs. 400 crore
- Surcharge increased on individuals having taxable income from Rs. 2 crore to Rs. 5 crore and Rs. 5 crore and above
- One can file tax returns using Aadhaar and use it wherever they are required to quote PAN
Income Tax:
- Provide investment linked income tax exemptions to mega-manufacturing plants in sunrise and advanced technology areas
- Additional income tax deduction of Rs. 1.5 lakh on interest paid on electric vehicle loans
- Additional deduction up to Rs. 1.5 lakhs for interest paid on loans borrowed up to 31st March, 2020 for purchase of house valued up to Rs. 45 lakh.
- Pre-filling of Income-tax Returns for faster, ensuring more accurate tax returns.
Relief for Start-ups:
- Capital gains exemptions from sale of residential house for investment in start-ups
- Funds raised by start-ups to not require scrutiny from Income Tax Department
Rural India:
- Every rural family will have electricity and cooking gas connection by 2022
- Water at every household is this Govt target by 2024 and will involve states
- Swach Bharat should now be expanded to all villages of this country
- Rural Digital literacy program to be expanded.
Urban India:
- Urban housing saw 81 lac houses has been announced with outlay of INR 4.83 lakh crores out of which 47 lac houses are under construction with 24 lac houses already delivered.
- Proposal to enhance the metro railway
Investment Driven Growth:
- Proposal for Credit Guarantee Enhancement Corporation to be setup in 2019-20
- Proposal to enable stock exchanges to allow AA rated bonds as collaterals
- Consider increasing minimum public shareholding from 25% to 35% in the listed companies.
- FPIs – Rationalize & Streamline KYC form to make more investor friendly
- Retail investors to invest in G-Sec / T-bill – Inter operability with SEBI & RBI
FDI inflow:
- Opening up FDI in Aviation, Media, Insurance Sector in consultation with all the stake holders
- 100% FDI in Insurance Intermediaries will be permitted
- Local Sourcing norms to be eased in Single Brand Retail Sector
- Institutional Savings into India – Global investors meet of all funds
- Statutory limit for FPI investment in a company is proposed to be increased from 24%
- FPIs to be permitted to subscribe to listed debt securities issued by ReITs and InvITs.
- NRI-Portfolio Investment Scheme Route is proposed to be merged with the Foreign Portfolio Investment Route.
Mutual Fund:
- To promote the International Financial Services Centre (IFSC) several direct tax incentives are proposed including exemption from dividend distribution tax from current and accumulated income to companies and mutual funds.
- To facilitate setting up of mutual funds in the IFSC, it is proposed that there would be no additional tax on distribution of any amount, on or after 1st Sept, 2019 by a specified Mutual Fund out of its income derived from transactions made on a recognised stock exchange located in any IFSC.
Banking/NBFC Sector:
- Public sector banks to be given Rs. 70,000 crore capital to boost capital
- India proposes reforms to strengthen governance in PSU banks
- NBFCs are fundamentally strong and should keep getting funds from banks, MFs
- Proposal for strengthening the regulatory authority over NBFCs by RBI.
Borrowing/Fiscal:
- To keep FY20 gross borrowing unchanged at 7.1 trillion rupees
- India to peg FY20 budget deficit target at 3.3% of GDP
- Tax proposals aimed to stimulate growth.
Disinvestment:
- Divestment to continue with going below 51% stake in companies if required on a case to case basis
- Allocated INR 70000crs for PSU banks
- Purchase of High rated pooled asset worth INR 1 lac cr will see government will provide 1st time credit guarantee for 1st loss upto 10% upto 6 months
- To realign holding in State Company including banks and offer more state company for strategic investment
- INR 105000crs target for Divestment for Fy20
- Retail participation in CPSE to be encouraged further.
Y O U T H | E D U C A T I O N | W O M E N :
- Every Self Help Group (SHG) will be eligible to get bank OD of INR 5k and will be eligible for loan up to Rs. 1 lakh under MUDRA scheme
- Study in India will be program to see foreign students coming to India in order to develop India as an education hub and will bring in a new National Education Policy
- Sports India will be expanded with funding made available.
Equity Market Outlook
More long term policy initiatives, less near term budgeting
Financial Minister did an apt work on outlining the Government long term policy initiatives and focussing less on the Receipts and Payments Statement. On the whole, we believe the first budget of NDA 2.0 is in-line with its long term thought process and putting in place structural building blocks to accelerate economic growth. It aims to reach USD 5 trillion GDP by 2025.Government walked the tight rope of fiscal discipline by maintaining the fiscal deficit at 3.3% of GDP. On the revenue collection side, government tweaked tax rates for very high earner category. It introduced buy back tax to plug the dividend tax loophole,increased auto fuel taxes, customs duty on gold imports and upped divestment target to Rs1.05 trillion. On the expenditure side, it’s largely the same from interim budget.
On the policy initiatives, government thrust on affordable housing continues with higher tax incentives and clear intent on Electrical Vehicles (EV) penetration by lower GST and income tax incentive. On the banking sector front, the main agenda has been recapitalization of PSU bank along with consolidation. RBI powers have been enhanced to govern Housing Finance Companies (HFCs) and Non Banking Finance Companies (NBFCs.) Liquidity concerns have been addressed to some extent by giving credit guarantee to PSU banks towards NBFCs pooled asset purchase. Also, thrust on infrastructure continues through various schemes.
Debt Market Outlook
With domestic inflation well within control and budget announcement prioritizing fiscal prudence, showcased by lowering fiscal deficit to 3.3%, Government’s willingness to raise sovereign debt externally will reduce pressure on domestic markets. Further, supported by expected rate cuts and global developments, the domestic bond markets sentiments are expected to remain uplifted.
With domestic inflation well within control and budget announcement prioritizing fiscal prudence, showcased by lowering fiscal deficit to 3.3%, Government’s willingness to raise sovereign debt externally will reduce pressure on domestic markets. Further, supported by expected rate cuts and global developments, the domestic bond markets sentiments are expected to remain uplifted.