Budget aimed at winning back core constituency of urban middle class: VK Sharma

Citizens with income lesser than Rs 5 lakh were to get full tax rebate which meant that they don’t have to pay taxes. Rebate under section 87A was hiked to Rs 12,500 from Rs 2,500. The amount under standard deduction was also hiked by Rs 10,000 to Rs 50,000 from Rs 40,000.

VK Sharma

If it looks like a duck, swims like a duck and quacks like a duck, then it has to be a duck. So, let us not be pretentious about the fact that this not an election Budget.

It is an election budget aimed at winning back its core constituency of the urban middle class.

Full tax rebate up to Rs 5 lakh annual income after all deductions is mulled in the budget. This is a clever ploy to only help the real middle class, as the tax slabs remain in place.

Retired persons will find the higher thresh hold limit for TDS at Rs 40,000 as compared to current Rs 10,000. Very helpful as they will not have to file their returns to claim the refund of TDS.

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Small farmers will now get assistance to the extent of Rs 6,000 per annum in three tranches. This will silence some critiques who were saying that the government was not doing enough for the farmers.

The Finance Minister has addressed the hitherto unrecognised segment of unorganised workers with a monthly income of Rs 15,000 or less through the Pradhan Mantri Shram Yogi Mandhan. It will provide assured monthly pension of Rs 3,000 with a contribution of Rs 100 per month for workers in the unorganised sector after 60 years of age.

This is going to attract more than 10 crore workers in the next five years, which will make it the largest pension scheme in the world.

What is important is that the government has been able to curtail its fiscal deficit to 3.4 percent for the current year and has also assumed the same for next year.

While the economists may want a pinch of salt to digest the maths behind the numbers, but coming in an election year, it was likely to be expected.

Another important point we need to remember is this that government spending has a cascading impact on the economy. The amount set aside for farmer assistance of Rs 75,000 crore has the potential to add 100 basis points to the economy, which can further reduce the fiscal deficit percentage.

We have seen political parties promising the moon to the electorate ahead of the elections. At least these schemes appear to be grounded in reality.

I believe that the steps taken in the Budget apart from catalysing growth in the economy will also touch the lives of crores of people in a meaningfully positive way.

What this means for us in the market place is that the psephologists will have to take notice of this budget and revise their odds for the current dispensation to come back with strong numbers in 2019.

The budget is out of the way. The external environment is good. The US Federal Reserve is now in a dovish mood. Since the US has put sanctions on Venezuelan crude, making the commodity head northwards, it will be under pressure to allow the countries importing crude from Iran some more time beyond May, which augurs well for India.

The combination of the dovish Fed and a pliant US makes us believe the markets will make a new high before the elections.

The author is Head PCG & Capital Markets Strategy at HDFC Securities. 

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