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Last Updated : Jun 20, 2019 08:26 PM IST | Source:

Podcast | Digging Deeper - Budget 2019: How the Budget will impact you

How does the Budget affect you and me? And are there certain stocks benefiting from the budget announcements? These are the questions we will address today.

Moneycontrol Contributor @moneycontrolcom


Moneycontrol Contributor

(Note: This podcast was first published in January 2018 and has been repurposed for Moneycontrol listeners.)

The dust has settled on the budget. Now to the main event. How does it affect you and me? And are there certain stocks benefiting from the budget announcements? These are the questions we will address today.


“Make or Break Budget” was the resounding theme peddled by all observers ahead of the interim budget. Before Piyush Goyal – presenting the budget in Arun Jaitley’s leave of absence for medical reasons – rose to present the Union Budget for 2019, the questions that did the rounds ranged from “Will the Modi government present a populist budget in a last-ditch effort to woo voters, especially from the Hindi heartland who seemed to have turned away from him in the recent State Assembly elections?” to “Will there be cash sops to farmers and how will it impact fiscal deficit?” to “Will this be a lame duck budget after all?” A few of these questions have been answered even as another question needs some more resolution – did 2017-18 see the highest rates of unemployment in 45 years? A Business Standard report noted that the first full year after demonetization had a drastic impact on job numbers – unemployment rates of 6.1%! The publication also went on to claim that the NSSO (National Sample Survey Organisation) report had been withheld by the government. Business Standard also claimed that two members of the NSSO who were not government officials - National Statistical Commission’s Acting Chairman PC Mohanan and member JV Meenakshi, a professor at Delhi School of Economics – quit citing, among other things, the government’s decision to withhold the NSSO’s report on employment for 2017-18. For reference, unemployment rate in 2013-14 was 4.9%; the promise of eradicating unemployment was one of the reasons the Modi government came to power in 2014 when the BJP manifesto claimed that India’s labour force was “the pillar of our growth.”

Of course, one must acknowledge that measuring employment numbers in a country where a vast majority is employed in the informal sector is notoriously difficult. The Niti Aayog, on its part, defended Prime Minister Narendra Modi’s record of creating jobs. At a press conference, Rajiv Kumar, vice chairman of Niti Aayog said the NSSO report was a draft and had not been finalized by the government and that the government decided to hold the report as it did not have the data for the comparable period.” Not helping with the optics was the fact that these reports surfaced on the same day the government revised GDP growth for 2016-17, the year of demonetisation, upwards by 100 basis points to 7.2 percent. Earlier, as you might recall, it had revised down the UPA-era growth numbers.

While it is undeniable that India’s growth rate remains robust, it is equally true that Indians from the working- and lower-middle classes are hurting, especially women and the young. According to the ‘State of Working India 2018,’ a study conducted by the Center for Sustainable Employment at Azim Premji University (which, quick aside, has been denied the Institute of Eminence status (alongside Ashoka, Jindal, Universities) because the Intelligence Bureau has flagged Mr Premji for making anti-Modi statements), India’s youth unemployment now stands at 16% while women hold just 16% of jobs in the service sector. You will all recall how 23 million individuals applied for just 89,400 jobs advertised at the Indian Railways last year. Or the grim story of how 7000 applicants – many of them graduates in law, engineering – applied for 13 waiting jobs in the canteen at the secretariat of the government of Maharashtra. The robust growth we spoke of earlier clearly seems to only be positively impacting almost entirely those people already at the top.

After the Business Standard reports came out, Rahul Gandhi called Modi “The Fuhrer,” the BJP hit him back with a “Mussolini,” and primetime television exploded, and somewhere in the din, nuanced discussion died a quiet death in an unmarked grave. All television channels carried this as their lead story except one. Its lede had a hashtag that said #CongressAttacksHindus. We will let you guess which one.

It was important that we discussed this – albeit in minor detail – because the day after the Business Standard leak, to take focus away from that story, was the interim Union Budget.

The highlights from the annual exercise of guiding the country safely on choppy financial seas are what we will discuss today. This being an interim budget is not quite like a Union Budget but in many ways, it is more politically charged than a normal Union Budget is. My name is Rakesh Sharma, and these are the Interim Budget Highlights on Moneycontrol.

The interim budget only covers that period until a new government takes office, and isn’t typically used to make major announcements (tax changes, for example). But there’s no law that prevents the current dispensation from making the changes they wish to make in the run up to May. And some of the measures as announced by Mr Goyal in the Lower House of the Parliament seemed to indicate just that. Very quickly, some big highlights:

Mr Goyal started off by saying “I am deeply conscious of the absence of Arun Jaitley,” and wished him a speedy recovery. He then spoke of the achievements of the current administration claiming right at the outset that “I can proudly say that India is solidly back on growth track.” Crediting the government with helping families save money by reducing “the back-breaking inflation of 10.1%” of the UPA era, Mr Goyal claimed the Modi era average inflation of 4.6 percent was lower than the inflation during the tenure of any other government. The government revised fiscal deficit estimate for FY19 to 3.4 percent of the GDP compared with the budget estimate of 3.3 percent.

Continuing with the report card, the Finance Minister said India has achieved over 98 percent rural sanitation coverage. He said about 5.45 lakh villages have been declared open-defecation free. He said that the government will add two lakh education seats with roll out of additional reservation. FY19 food subsidy spend was Rs 1.7 lakh crore; FY20 PM Gram Sadak Yojana spend was Rs 19,000 crore. Mr Goyal said the government had constructed 1.53 crore houses so far. Speaking of the big burning issue of non-performing assets in the Indian banking sector, Mr Goyal said the UPA era was primarily responsible for the debacle, and that under the current administration, the Insolvency and Bankruptcy Code, had to an extent been effective in rectifying the problem, claiming about three lakh crore rupees had been recovered thus far. He also expressed confidence that all banks would exit the RBI’s Prompt Corrective Action framework. As Gaurav Chaudhary noted on Moneycontrol, "He presented a stirring account of the Modi-government’s economic and reform policies, generously peppering his 100 minute speech with details of signature initiatives such as Ayushman Bharat, Pradhan Mantri Jan Ausadhi Yojana, Make in India, Jan Dhan Scheme, Start Up India, MUDRA and the Insolvency and Bankruptcy Code (IBC)." Also receiving praise from the man were the Real Estate Regulation Act (RERA), the Benami Properties Act and the Fugitive Economic Offenders Bill. LEDs have apparently saved Rs 50,000 crores - the scheme to provide LED bulbs to  households across the country has led to annual savings of up to 50000 crore rupees in electricity bills, Mr Goyal claimed.



Direct income transfer to small and marginal farmers with holdings up to two hectares was among the big announcements of the budget. Farmer distress – exacerbated due to drop in food prices – has been one of the overarching political themes of last year resulting in large protest marches, and perhaps even the loss suffered by the BJP in the key states of Madhya Pradesh, Rajasthan, and Chhattisgarh. This Nidhi will cost the government 75,000 crore rupees in FY20, with the government providing 20,000 crores in the current year.

Among the salient features of the scheme are:

  1. Support of Rs 6,000 per year would be provided to farmers with holdings up to 2 hectares, taking place in three equal installments of Rs 2,000 each. The scheme will be fully funded by the government.

  2. The transfers would start retrospectively from December 2018.

  3. 12 crore farmer families expected to benefit from the scheme.

Devendra Pant, chief economist at India Ratings, speaking to Bloomberg Quint, said the allocated target for the farm income support will work out at about 52 basis points of the gross domestic product. BloombergQuint further noted: “Arun Singh, lead economist at Dun & Bradstreet, said the move will give farmers some confidence in times of crisis. “If implemented in a time-bound manner, this will also help ignite rural consumption, which otherwise is muted.” Singh, however, expressed concerns over the fiscal space in FY20. Agreed Gene Fang, associate managing director (sovereign risk group) at Moody’s Investors Service. “The increased fiscal outlay for the direct income support scheme and subsidised agriculture loans are likely to boost the rural economy through consumption in the near term but will have a fiscal cost.””

Great harvests have come with a low price to pay for the customer but a high price for the farmer. Despite the minimum support price initiative of the government, issues relating to procurement have led several farmers to sell to private buyers at much lower costs. As we have spoken about on an earlier podcast, the issues dogging the Indian farmer are several. Loan waivers, and direct transfer of cash may or may not solve them. Unless there are concrete and sustainable measures taken to address the issues of rising fertiliser costs, high rural unemployment, poor irrigation, better and more efficient crop insurance apparatus, comprehensive farm sector reform is but a distant dream. According to the last National Sample Survey in 2014, about a quarter of Indian farmers live below the poverty line, while over half of the farming households remain in debt, with several resorting to suicide due to their inability to pay back the loans taken. How this scheme is received by the farmer community will be clearer in a few days.

In other sops to the farming community, farmers affected by natural calamities to get 2% interest subvention and additional 3% interest subvention upon timely repayment. 2% interest subvention to farmers who pursue animal husbandry, fisheries jobs through Kisaan credit cards.


The house erupted in chants of “Modi, Modi, Modi” when what was perhaps the most crowdpleasing of all announcements was made by the government. Individual taxpayers with income up to Rs 5 lakh will get a full tax rebate. However, the existing tax rates to continue for now until next budget. Simply put, those who earn a gross income of Rs 6.5 lakh will not have to pay tax. The move is expected to benefit three crore middle-class taxpayers to the tune of around 18,000 crore rupees. Standard deduction has been raised from 40,000 rupees to 50,000 rupees. Amrish Shah of Deloitte India, in response to the move said, “The release in cash outflow on account of tax reduction to middle income earners will lead to more consumption and fuel growth in the economy.”

“Small taxpayers especially the middle class, salary earners and senior citizens need certainty in their minds at the beginning of the year about taxes. Therefore proposal relating to such class of persons should not wait,” said Mr Goyal in his speech. Additionally, of course, the salaried middle class is also among the largest vote blocs for the Modi government. “Our aim is to reduce the tax burden on the middle class”, Goyal said.

On the issue of LTCG, in a relief to those seeking to sell real estate, the finance minister announced that the long-term capital gains tax arising out of the sale of a property up to Rs 2 crore could be used to buy two properties. Currently, individuals can only reduce their long-term capital gains on sale of property by buying a single house. The caveat here is that an individual can only claim this extended benefit once in their lifetime.


The Mahatma Gandhi National Rural Employment Guarantee Scheme – the UPA government’s flagship programme – is one of the key schemes aimed at rural development. The government has budgeted Rs 60,000 crore under the scheme for fiscal year 2020. The National Rural Employment Guarantee Act provides at least 100 days of manual work with daily wages to every household in rural India. Last year, the government had set aside 55,000 crore rupees in what was until then the highest allocation of resources under the scheme. Since FY17, the allocation under MGNREGA has only gone up: FY17 – 38,500 crores; FY18 – 48,000 crores; FY19 – 55,000 crores. The eventual expenditures in each of these years have also crossed allocations each year. Rs 19,000 allocated for construction of rural roads under Gram Sadak Yojana.


The central government fiscal deficit for 2018-19 settled at 3.4 percent of the GDP. This is marginally higher than the target of 3.3 percent that the government had set for itself. For FY20, the government has said that the fiscal deficit will remain unchanged at 3.4 percent of GDP. This is the second year in a row that the government has missed its fiscal deficit target. It could have been better, but for the additional setting aside of Rs 75,000 crore for farm income support scheme, Goyal said

The fiscal deficit numbers need to be kept a close eye on especially in an election year. “Higher pre-election spending could risk a second consecutive year of fiscal slippage relative to the government's targets and would further delay plans to reduce the high general government fiscal deficit and debt burden,” Fitch Ratings had said earlier on Monday.

The three percent fiscal deficit target has remained but a pipedream. Having said that, over the course of the Modi era, the fiscal deficit has come down from 4.1% in 2014-15 to 3.4% this last fiscal year.


Pradhan Mantri Shram-Yogi Maandhan is a pension scheme launched by the government for workers in the unorganised sector. Mr Goyal 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 is to match the contributions. In the current fiscal year, 500 crore rupees have been allocated under the scheme.

The immediate question that is being asked by analysts is how this scheme is different from the Atal Pension Yojana. Indeed the new scheme is a restructured version of the Atal Yojana, also co-contributed by the government. Atal Pension Yojana came into effect in June 2015 and allowed subscribers between the age of 18 and 40 years to receive pension after reaching the age of 60. Under the Atal Yojana, the beneficiaries were supposed to contribute for at least 20 years to avail the pension benefit. As BloombergQuint noted, “The minimum monthly contribution for a subscriber who joined the scheme at 18 years was Rs 42-210 and for those who joined at 40 years, it was Rs 291-1,454 to receive a fixed Rs 1,000-5,000 monthly pension. The new pension scheme offers Rs 3,000 per month benefit at a minimum contribution of Rs 55 for those who joined at 18 years compared with a monthly contribution of Rs 126 under the earlier sc scheme to avail the same benefit.” The central government’s co-contribution under the new scheme also increased to 100 percent of the subscriber’s total contribution from the earlier 50 percent or Rs 1000 per annum that it paid under Atal Pension Yojana. About 78.42 lakh beneficiaries had enrolled under Atal Pension Yojana as of Dec. 20, 2017. The budget allocation fell from Rs 200 crore for 2016 to Rs 155 crore in 2018-19, as per the budget estimate.

A summary of the other big features announced in the budget:

  1. Tax exemption on investments:

  • Individuals with gross income up to 6.5 lakh rupees will not need to pay any tax if they make investments in provident funds and prescribed equities

  • Capital gains tax exemptions under Section 54 to be available up to Rs 2 crore. Capital gains exemption to be available on 2 house properties

  • TDS threshold for home rent increased from Rs 1.8 lakh to 2.4 lakh

  • Interest income up to Rs 40,000 in post offices and banks made tax free

  • Processing of IT returns will take place within 24 hours and refunds will be paid immediately

  • Anonymised tax system: in the next two years, almost all assessment and verification of IT returns will be done electronically and without any intervention by officials.

  1. Education sector:

Finance minister Piyush Goyal increased the allocation for the education sector by 12.2           percent to Rs 93,847.64 crore in the Interim Budget 2019-20. According to the           expenditure budget documents, department of school education and literacy has been           allocated Rs 56,386.63 crore while department of higher education has been given Rs 37,461.01 crore.

  1. FMCG Sector:

The fast-moving consumer goods sector (FMCG sector) is likely to reap the benefits of              the government’s thrust on the farm sector announced in the Union Budget 2019. The       FMCG and retail industry has given a thumbs up to the budget as it will bring in more              money in the hands of the consumers and have termed the budget a consumption-        oriented budget.

  1. Defence sector:

As in most countries, notably the USA, and whether or not an entirely defensible idea, the defence sector occupies a lion's share in the budget. In the US, the defence budget for 2017, for example, was $610 billion. That is more than the combined military spending of China, Russia, Saudi Arabia, India, France, United Kingdom, and Japan put together. These budgets combined stood at $578 billion, still $32 billion short. This year, the                 Indian government increased defence budget to over Rs 3 lakh crore. Government will provide additional funds for Defence, if needed. "We have disbursed 35,000 crore rupees under OROP scheme in the last few years," said Mr Goyal.

  1. Social Welfare Schemes:

  • Govt to build 1 lakh digital villages

  • For the welfare of farmers and for doubling their income, historic decision was taken to increase MSP by 1.5 times the production cost for all 22 crops

  • To ensure cleaner fuel and health assurance, we embarked upon Pradhan Mantri Ujjwala Yojana, a programme to give 8 crore free LPG connections to rural households, 6 crore connections have been given already

  • Committee under NITI Aayog to be set up for denotified nomadic and semi-nomadic communities.


Mr Goyal also laid down the Modi government's Vision 2030 plan, focused around the aspiration to make India a $10 trillion economy in the next decade. He listed what the administration called "ten importunate dimensions" which are:

  • To build physical and social infrastructure for a $10-trillion economy and to provide ease of living with Digital India reaching every sector of the economy.

  • Making India a pollution free nation.

  • Generating massive employment built upon the “Make In India” programme to develop grassroots level clusters.

  • Clean rivers.

  • Powering India’s coastline growth through the development of ports and sea-freight industry.

  • Developing a space programme, named Gaganyaan. India has become the launchpad for satellites of the world.

  • Making India self sufficient in food and exporting to the world, while producing food in the most organic ways.

  • Aiming at a healthy society and environment of health assurance.

  • To work towards a distress-free health and wellness system.

  • Minimum government, maximum governance with a proactive and friendly bureaucracy.


The Indian markets had a bit of a rollercoaster ride of reactions on B-Day. The tax relief announced for salaried employees took the markets on a huge high with the BSE Sensex at one point rising as much as 520 points. But the digestion of the fineprint somewhat dented sentiment soon after. As Shishir Asthana noted, "The relief on income tax is applicable for employees with a salary of up to Rs 5 lakh. However, even those with the salary up to Rs 10 lakh can benefit by taking advantage of various exemptions like 80C/80D, deduction on house loan interest. But this revelation acted as a dampener for the market which started falling and at one point was in the negative territory." Shishir continued, "Part of the reason for the fall was also in the fine prints, especially the borrowing part. There is a sharp jump in the government borrowing program for next year. As against an expectation of Rs 6.50 lakh crore the government is expected to borrow Rs 7.60 lakh crore. Bond markets reacted to this news flow and so did Banking sector indices. NSE Bank Nifty was down by 209 points, down by nearly 450 points from its high. The rise in the interest rate on account of higher borrowing by the government will affect all sectors of the economy and not only banking stocks."

The real estate sector may end up a beneficiary of the interim budget as it has received direct and indirect benefits from the government. Shishir again, "Notional rent on the second self-occupied house has been done away with while the TDS threshold of rent has been increased from Rs 1.8 lakh to Rs 2.4 lakh. Rollover of capital gains for section 54 to be increased from 1 residential house to 2 residential houses (for capital gains up to Rs 2 Crore). Also, for affordable Housing - Deduction under 80IB(8) has been extended by one more year. Finally, the builders have been given some relief by extending their exemption (notional income) on unsold inventory from 1 year to 2 years. No surprise the NSE Realty sector was up 1.25 percent during the day."

The budget evoked reactions that could be summed up in one sound: meh. No one was particularly ecstatic, nor anyone particularly morose. First, the extremes. FM Arun Jaitley tweeted, "The Budget is unquestionably Pro-Growth, Fiscally prudent, Pro-Farmer, Pro-Poor and strengthens the purchasing power of the Indian Middle Class." Rahul Gandhi said, "Dear NoMo, 5 years of your incompetence and arrogance has destroyed the lives of our farmers. Giving them Rs. 17 a day is an insult to everything they stand and work for. #AakhriJumlaBudget." Adding to the Congress voice was former FM P. Chidambaram who tweeted, "It was not a Vote on Account. It was an Account for Votes."

Anand Mahindra, quick with the tweet, said, "I was bracing for a populist, profligate budget driven by ‘election panic.’ I’m just grateful that the reliefs to the key middle class & farmer segments were delivered in a measured way without risking bankruptcy of the economy. This was a controlled, pump-priming exercise..."

Siddharth Roy Kapur, President, Producers Guild of India reacting to a film industry specific announcement, said, “We are delighted that the immense contribution of Indian cinema towards employment generation in the country has been acknowledged and applauded in Parliament during the presentation of the Union Budget. The announcement of a single-window clearance mechanism for Indian filmmakers filming within India is a significant step and has the potential to play a huge role in boosting tourism in the country. The amendments in the Anti Camcording provisions will support the industry’s growth by curtailing illegal recordings of films in cinema halls and will go a long way towards reducing piracy.”

Mark Mobius of Mobius Capital Partners said, "Measures by the government could move the GDP numbers up by 0.5 percent," while Ramesh Damani said something prophetic that has since come true: "Markets will test the 11000+ level pre-elections, with the leading real estate players will do well from here on."

Deepak Parekh, Chairman of HDFC, said, "Not worried about the fiscal deficit or capital account deficit. A fiscal deficit at 3.5% of the GDP with over 7% growth rate should be reasonable."

Mutual fund houses across the country were also welcoming of the budget, with many waiting for the outcome of the Monetary Policy Committee meeting for further clarity, and indeed the full budget after the elections.


Well, the benefits of the budget were largely devoted to salaried employees, farmers, and the MSME sector. That reads like a pretty standard pre-election budget. It did not quite have specific sops for the investor community, although it is a silver lining that the fiscal deficit number did not exceed much from the target and the measures announced are likely to support earnings of companies in FMCG, agriculture, real estate, and healthcare companies.

Emkay Global, calling the budget's stance "reflationary" has maintained its Nifty target range of 11,000-10,400 but continues to remain cautious on mid & smallcap stocks. It is 'overweight' on IT services, pharmaceuticals, BFSI (primarily private banks), and specialty chemicals; 'equalweight' on auto & auto ancillaries, consumers, oil & gas, metals & mining, and fertilizers & agro-chemicals; and 'underweight' on capital goods, construction & infra, cement and telecom.

Morgan Stanley remains positive on what the budget had to offer to developers and homeowners (property sector). It welcomed the appointment of a committee of ministers to examine GST on housing, which is at an effective rate of 12%. It prefers midcap stocks in the housing and real estate sectors: Oberoi Realty, Sobha, Prestige. Each of these has an overweight rating from them. Morgan Stanley said, "Assuming a 1.5-2 percent rental yield, this can result in a 60-70bp (as a % of sale value) of tax savings. In terms of stocks, DLF and Oberoi have high complete/near complete inventory and could benefit the most."

Mustafa Nadeem of Epic Research thinks the budget may prove useful for investors in the Auto sector with the change in the import duty for electric vehicle components being cited by him as a key change that might be a big boost to the EV players. In the bid to the country becoming more and more electric on wheels, this might prove to be a good time to invest in well-established players in the auto sector like Hero MotoCorp, Mahindra & Mahindra, and Ashok Leyland.

Considering the increase in allocation of resources to the Pradhan Mantri Gram Sadak Yojana and the rise in total capital and development expenditure of Railways (from 1.4 trillion rupees to 1.6 trillion rupees), HDFC Securities believes the Construction sector could benefit from the budget. KNR Construction, PNC Infra, L&T, Sadbhav Engineering, Ashoka Buildcon and Dilip Buildcon are their choices for the biggest beneficiaries of the budget.

The PM Aawas Yojana has had a bump of 2300 crore rupees from its previous allocation of 16000 crore rupees. States are also lagging behind in the target of constructing 1 crore households in rural areas by the end of FY19. The PM Ujjwala Yojana has been extended to a total of 8 crore households, and the government claims to have provided new LPG connections to 5.9 crore households and aims at attaining the 8 crore mark by FY20. The PM Saubhagya Yojana aims at 100% electrification by the end of FY19. These aims, in addition to the tax sops given to the middle class and therefore an expected rise in urban discretionary spending, might prove to be a big boost for companies involved in cables, fan, lighting, consumer durables sectors. So, HDFC securities bets on Jubilant Foodworks, TTK Prestige, Hawkins Cooker, Havells India, Crompton Electric Consumer, V-Guard, and Symphony.

Sit back and make hay while the sun shines. The stock market is in an upswing; the sentiment good; the mood jubilant. But this is an election year, and who knows what to truly expect. But if you want to make a few investment decisions while the iron is hot and the weather cold, hopefully some of those names might come in handy.

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First Published on Jun 20, 2019 08:15 pm
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