Interim Budget or Re-Election Manifesto?

Finance Minister Mr. Piyush Goyal did a good job for his party by not only highlighting what NDA government achieved in the last four-and-half years, but also ensured that its vote banks are kept in good spirits by announcing various sops.

We had a hint that the Government would use this Budget was to make a statement to the middle class, farmers and women. So, whenever FM talked on proposals for these three segments, he spoke in Hindi to ensure that the target audiences understood the announcements.

If you ask me, there is nothing much in the interim Budget that would call for a change in the outlook for the economy or for the stock market. From the stock market point of view, some relief on LTCG was expected, but it did not come through. In fact, it was too much to expect, as the stock market investors are not the constituency the government wants to address in the Election year. When the LTCG tax on equity was introduced last year, the justification was that it is the rich who benefit from the same and, hence, they should be taxed. Any relief in LTCG tax would have meant that the rich have been given concession at the cost of poor.

There are a few highlights I would like to mention. The FM spelt out vision for India by 2030 in ten dimensions like strong physical and social infra, Digital India, green earth and blue sky, expanding rural industrialization, clean rivers, making good use of coastline, putting astronaut in space, food exports, healthy India and last minimum government and maximum governance. While the intent is good, it would be crucial to see how well it’s executed.  This part of the speech sounded like an Election manifesto rather than an interim Budget by an outgoing Government. Politically it was a coup, the Congress has very little left to promise to people and will have to be really creative to win any brownie points before the Election. And whats worse, they can’t even undo the promises made by this Government, even if they win. A real dilemma.

Over the years, the Budget has been losing its importance as most of the reforms on direct as well as indirect taxes are done outside of it. Budget has merely become an incremental announcement of reforms or tax rationalisation. The implementation of the GST has taken away the charm of the Budget as modification of indirect taxes is being done by the GST Council and not by FM. The GST Council meets more than once in a financial year unlike the Budget, which is presented once in a year. In the recent past, we have seen government tinkering with other indirect taxes to meet immediate challenges, like it decreased the duty on petrol and diesel when the crude oil prices were surging and rupee was falling. Similarly, the government also increased duty on imports when it realized that cheap imports are hurting local manufacturers. In that sense, the indirect taxes are no longer the domain of the Budget alone.

As far as the stock market is concerned, the event is over. From Monday onward, the stock market would start looking at various international as well as domestic events, including the general Elections. In the next 30 days, the Election schedule would be announced and then the focus of the market would shift on who would form the next government.

Hence, I would suggest investors not to read too much in this Budget. Real estate companies share prices shot up after the Budget, but I am not sure they are good buys. The announcements are not game changer for the sector till the demand revives. The same way, some of consumption stocks have also moved up on the belief that tax rebates would spur consumption. While I do agree that this would put some money in the hands of the consumers, one should also look at the valuations as many of the consumer-facing companies are commanding rich valuations. Investors do get carried away by the Budget announcements, but that trend does not sustain beyond a day. Just to prove a point, last year out of the top 10 gainers on the Budget day, as many as 7 companies are quoting below the Budget levels in one year.

Hence don’t take any investment decisions purely based on Budget announcements but look at the fundamentals of the company and the sector. Remember that this is just an interim Budget. The main Budget would be presented in July by the newly elected government.

From Monday onward, fundamentals would dictate the market. With Budget uncertainty gone, welcome Election uncertainty!

Major Budget announcements

Direct Taxes

  • Existing rates of income tax will continue for FY2020. In other words, there is no change in IT slab rate in the interim Budget
  • FM said that income tax received from taxpayers has been used for constructing toilets, providing cooking gas connections, electricity connections to poor who lived in darkness for generations, healthcare benefits for the poor and for paying pensions to defence personnel.
  • Individual taxpayers having income up to Rs 5 lakh will get full tax rebate. This was the most debated announcement in the Budget as many experts could not understand when it was announced. This announcement would provide tax benefits of Rs 18,500 crore to 3 crore middle class tax payers
  • Standard deduction for salaried class increased from Rs 40000 to Rs 50000. This should benefit 3 crore taxpayers
  • No notional rent to be paid on second self-occupied house. Relief to the people who were owning two homes
  • Those who earn interest on bank FDs as well as post office savings given relief as TDS limit has been raised from Rs 10000 to Rs 40000
  • TDS on rent has been hiked from Rs 1.80 lacs to Rs 2.40 lacs
  • Roll-over of capital gains on home has been extended from one residential house to two residential houses, subject to maximum capital gain of Rs 2 crore
  • Builders need not pay notional rent on unsold inventory up to 2 years. It was previously one year.

Fiscal deficits

  • Disinvestment target for the current fiscal year has been pegged at Rs 80000 crore.
  • Fiscal deficit for current year revised to 3.4 per cent and CAD to 2.5 per cent
  • Fiscal deficit for FY2020 has been pegged at 3.4 per cent.
  • Rs 3 lakh crore received due to IBC

New schemes and allocations

  • Rs 60000 crore allocated for MGNREGA in FY2020
  • Rs 19000 crore allocated for Pradhan Mantri Gram Sadak Yojana in FY2020
  • Launched Pradhan Mantri Kisan Samman Nidhi through which every farmer having land up to 2 hectares would get Rs 6,000 per year in three installments. This would cost the exchequer Rs 75,000 crore. This is over and above other benefits available to farmers
  • A new Department of Fisheries to be created to increase focus on fisheries
  • New pension scheme launched called Pradhan Mantri Shram Yogi Maandhan where unorganized workers having monthly income up to Rs 15000 will get pension after reaching age of 60 years
  • Defence Budget would be crossing Rs 3 lac crore in FY2020
  • Railway operating ratio expected to improve to 95 per cent in FY2020
  • Single window clearance for the film industry
  • Number of IT returns increased to 6.85 crore from 3.79 crore in FY2014
  • GST collections increased to average Rs 97100 crore every month from Rs 89700 crore of last year

New India

  • India has become world’s second largest start-up hub
  • India to be $ 5 trillion economy in the next five years and $10 trillion economy in the next 13 years
  • Vision for next one decade has been spelt out
  • Indian astronaut to be put in space by 2022
  • India has moved from 11thlargest economy of the world in 2012-14 to 6th largest economy

Promise to have New India by 2022 – the 75th year of India’s Independence, where country would be free from terrorism, communalism, casteism, corruption and nepotism.

Sunil Damania
Chief Investment Officer – Marketsmojo.com

 

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Disclaimer: This blog is only for education purpose. We don’t give buy or sell call on any company. All investors are advised to do their independent research and/or consult their financial advisor.

 

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