The year gone by ‘2018’ was by far one of the toughest in terms of making money. Hence, there were a lot of expectations surrounding this budget especially given that this is an election year.
The year 2018 was by far one of the toughest in terms of making money. Hence, there were a lot of expectations surrounding this Budget, especially given that this is an election year.
The government has over the last few years initiated many structural reforms including the implementation of the Goods and Services Tax (GST) and the Bankruptcy Code. It is now time to reap the long benefits of the same.
The government has through the presentation of the Budget made clear its key target areas. The focus of the Budget has been three-fold.
One, boosting the income of the small and marginal farmers; two, supporting the middle-class taxpayers and thereby aiding consumption growth; and lastly, making efforts to revive the ailing real estate sector.
The announcement of the farmer income support package in the form of a direct cash transfer giving Rs 6,000/year for nearly 120 million farmers is a step in that direction. The government also announced a 5 percent interest rate subvention on the timely repayment of farm loans.
Apart from the small and the marginal farmers, the other key focus areas for the government has been to provide a boost for low-ticket consumption and aid to the middle-class tax payers.
In this respect, the Budget announced an income tax rebate (0% tax on incomes) for low-income individuals extended from Rs 2,50,000 to Rs 5,00,000. Apart from this, the standard deduction has been increased to Rs 50,000 from Rs 40,000 for employees.
The budget also announced several measures to help revive the property sector and continue the thrust on affordable housing.
While the measures aimed at the real estate space may be small and incremental, it gives a message that the government is looking at the sector as a tool to add to overall economic growth.
Income tax exemption for developers engaged in affordable housing has been extended by one more year. There have been a few positive measures from the consumers perspective as well, which include capital gains exemption granted for investment in two house properties versus one earlier subject to a maximum capital gain of Rs 20 mn.
The Budget does deviate marginally from the earlier outlined glide path for fiscal consolidation. This being an election year, clearly, the government had to walk the tight rope between boosting the economy, helping alleviate farm distress and bringing about fiscal consolidation.
With the fiscal deficit pegged at 3.4 percent for both FY19 and FY20, the pause on the fiscal consolidation was possibly justified by the need for the farm package to boost the incomes of the small and the marginal farmer.
The new glide path, however, does not change the original target of achieving 3 percent of GDP by FY21. From here on, a lot depends on achieving the targeted rate of growth in net tax revenues, including GST.
Apart from the borrowing programme, the bond market would likely watch closely the monetary policy decision to be announced later in February to decide on a future trajectory in terms of rates.
The author is Managing Director, Kotak Mahindra Asset Management Company
Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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