BQuick On Feb. 1: Top 10 Budget Stories In Under 10 Minutes

1. Is The 3.4% Fiscal Deficit Target Credible?

The Narendra Modi-led administration made a loud pitch for re-election as it announced a farm income support scheme, while also offering tax relief to middle class Indians. It stepped up spending. It made no announcement to step up revenue collection via any additional taxes being imposed. Yet, it said that its fiscal deficit would remain at 3.4 percent of GDP in FY20.

Is this number credible?

• At first glance, it looks like the government is banking on ensuring that revenue growth remains on target in FY20 as against the slippage seen in FY19.
• On expenditure, while expanding spending for farm support, most expenditure is being kept on a tight leash.
• Non-tax revenue sources such as divestment and dividends are expected to contribute significantly.

Here’s what the government is relying on to keep fiscal deficit in check.

2. Are Tax Targets Ambitious?

The Narendra Modi government expects to finance its poll-oriented promises such as an assured income scheme for farmers and pension scheme for workers in informal schemes via a jump in tax revenue but an achievable jump.

• Having achieved a 17 percent increase in gross tax revenue collections for financial year 2018-19, the union budget has estimated a more moderate 13.5 percent increase in FY20. In FY18 it achieved an 11.8 percent increase in gross tax revenue.
• This rides on an expected 13.26 percent increase in corporation tax, an over 17 percent increase in income tax and an 18 percent increase in GST revenue over revised estimates for FY19.
• While the 17 percent estimated increase in personal income tax seems steep, it comes on the back of a 22.8 percent rise in FY19 to Rs 5,29,000 crore and an 18 percent increase in FY18 to Rs 4,30,772.

The short answer to is - Ambitious, Yes. Unachievable, No.

3. Relief For Small Tax Payers

Finance Minister Piyush Goyal announced tax breaks as the Narendra Modi administration looks to woo India’s salaried middle class ahead of the upcoming general elections.

• Individual taxpayers having a taxable annual income up to Rs 5 lakh will get full tax rebate, Goyal said during his union budget speech in Parliament.
• The finance minister said that the tax proposals will be presented in full budget after the elections.
• The existing rates will continue for 2019-20.

Confused how it works out? Read this.

4. Wooing Farmers

Prime Minister Narendra Modi’s government announced direct income support for small and marginal farmers to help the sector which has seen returns drop due to low food prices.

• A support of Rs 6,000 per year would be provided to farmers with holdings up to 2 hectares.
• This transfer would happen in three equal instalments of Rs 2,000 each, starting retrospectively from December 2018.
• The scheme will cost the government Rs 75,000 crore in FY20.
• The government will provide Rs 20,000 crore in the current year.

This may help boost rural consumption.

5. Pension For Informal Sector Workers

The Narendra Modi government launched a pension scheme for workers in the unorganised sector—titled Pradhan Mantri Shram Yogi Mandhaan. Union Finance Minister Piyush Goyal in his budget speech for 2019-20 on Friday announced that workers in the unorganised sector earning up to Rs 15,000 a month shall receive a monthly pension of up to Rs 3,000 after the age of 60.

• A worker at the age of 18 will have to contribute Rs 55 a month, while those above 29 years will have to contribute Rs 100 every month.
• The government would match the contributions.
• The finance minister allocated Rs 500 crore for the scheme in the current fiscal.

Here’s how this is different from the Atal Pension Yojana.

6. Winners And Losers

Farmers, as well as companies with exposure to rural India and middle class taxpayers, seem to be the clear winners of the Budget at the expense of the country’s fiscal deficit.

• Agriculture-focused companies such as Shakti Pumps India Ltd., Jain Irrigation Systems Ltd., KSB Ltd., Kirloskar Brothers Ltd., Avanti Feeds Ltd., Waterbase Ltd., JK Agri Genetics Ltd., PI Industries Ltd. could benefit from the farm sector oriented schemes.
• Increased spending on the animal husbandry and fisheries sectors and an interest subvention plan for small-and-medium-sized businesses could benefit companies with exposure to rural India. That includes motorcycle companies and others with interests in the country’s heartland including Mahindra & Mahindra Ltd. and Larsen & Toubro Ltd.

Here are five other winners and four losers.

7. Stock Markets Welcomed The Budget...

Indian equity benchmarks clocked the best week of 2019 on Narendra Modi government's last budget proposals.

• The S&P BSE Sensex rose 0.59 percent or 213 points to 35,469.
• NSE Nifty 50 Index advanced 0.58 percent 63 points to 10,894.
• For the week, Sensex rose 1.2 percent and the Nifty advanced 1 percent.
• Here’s what market experts thought of the budget.

8. ...Bond Markets Not So Much

Sovereign bonds yields surged the most in eight months and rupee weakened after Prime Minister Narendra Modi’s government announced record borrowings to fund populist policies before elections by May.

• The administration plans to borrow Rs 7.1 lakh crore ($100 billion) in the year starting April 1, Finance Minister Piyush Goyal said in his interim budget speech on Friday.
• That compares with a Rs 6.4-lakh crore forecast in a Bloomberg News survey and a revised Rs 5.71 lakh crore for the current fiscal period.
• Higher sales will weigh on an already jittery bond market that has sold off in the past four of six weeks on concern the government may sacrifice fiscal discipline to woo farmers, a key voting block, with massive cash plans.
• The government will give handouts to farmers totaling Rs 75,000 crore annually, and give taxpayers Rs 18,500 crore of relief, Goyal said.

Continued fiscal slippages will will remain as “key overhang on sovereign rating.”

9. Pumping Up Home Sales

To give impetus to the sluggish housing sector, the government proposed tax sops to incentivise purchase of second homes.

• The budget also announced relief for realty firms by extending tax rebate on development of affordable housing until next fiscal and not charging tax for two years on notional rent of unsold units.
• The government announced that capital gains of up to Rs 2 crore could be rolled over for investment in two housing units from the current one unit only.
• For developers, Goyal said benefits under Section 80-IBA of the Income Tax Act are being extended for one more year to housing projects approved till March next year.

10. ‘We Can Do Better’, Says Congress’ Tharoor

Senior Congress leader Shashi Tharoor said the income support scheme for farmers announced by the Narendra Modi government in its final budget is not enough to alleviate the rural distress.

• “The Rs 6,000 a year income support for farmers is not a minimum income guarantee,” Tharoor told BloombergQuint in an interaction.
• “It boils down to Rs 500 a month and nobody is going to live meaningfully with ‘honor and dignity’, to use the minister’s words on that.”
• Instead, Tharoor said the Congress’ minimum income guarantee, which it promises to implement when in power, is a better alternative.

Watch Tharoor debate with BJP's Rajeev Chandrasekhar on today's budget.