Interim Budget
2019

Union Budget 2019 Live Updates

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CHANGES IN DIRECT TAX

Rate on taxable income upto Rs. 5 lakh reduced to 0% from 5%.

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CHANGES IN DIRECT TAX

Standard deduction limit raised to INR 50000 from INR 40000.

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EXEMPTION ON NOTIONAL INCOME FROM RENT

Notional rent Income from second Self occupied home to be exempted.

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80IB TAX BENEFIT`

80IB Tax Benefit extended

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FY20 FISCAL DEFICIT

Fiscal deficit unchanged at 3.4% for FY20E

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RAILWAYS BUDGET

Budgetary support for railways increased to INR 64587 cr. in FY20 INR from INR 53060 cr. in FY19

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DEFENCE ALLOCATION

Increased allocation upto 3lk cr and if required additional fund will be allocated

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FREE LPG CONNECTIONS

8 Cr Free LPG Connections under Ujjwala Scheme

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UNIVERSAL PENSION SCHEME

Pradhan mantri shram yogi mandhan to provide assured monthly pension of Rs. 3000 post retirement at age of 60. Monthly contribution of Rs. 100 per month for anyone joining at the age of 29 years. Govt to provide matching contribution.

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RASHTRIYA GOKUL MISSION

Budget allocation of 7,500cr for Rashtriya Gokul Mission

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INCREASE IN FARMER INCOME

Farmer income to double FY2022 will benefit all tractor companies

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ELECTRICITY FOR ALL

Electricity for all by March 2019

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FARM INCOME SUPPORT

Govt announces PM Kissan Saman scheme. Total Outlay of INR 75000 cr. To benefit small & marginal farmers with holdings upto 2 hecters of land. Govt to transfer INR 6000 cr. per annum in 3 installments directly to farmers.

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FARM INCOME SUPPORT

Government allocates INR 20,000 Cr. for PM Kissan Saman Nidhi in FY19 itself.

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ANIMAL HUSBANDRY & FISHERIES

2% subvention scheme for animal husbandry & fisheries

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NEEM COATED UREA

Allocation for Neem coated Urea increased

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FISCAL DEFICIT

Fiscal Deficit in 2019RE at 3.4% against market expectations of 3.5%.

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CURRENT ACCOUNT DEFICIT

In line with market expectations of 2.5% of GDP.

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MNREGA ALLOCATION

MNREGA allocation at Rs. 60000cr for FY19-20

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PRADHAN MANTRI GRAM SADAK YOJANA

Pradhan Mantri Gram Sadak Yojana allocated 19,000 cr for FY 2019-20

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INCREASE IN FARMER INCOME

Farmer income to double by 2022

Interim Budget 2019-20 Review

Fiscal Slippage a much needed fiscal stimulus

As expected, this interim Budget turned out to be much more than expected. There was a fiscal slippage in FY19 to 3.4% against budgeted estimates of 3.3%, though it was less than market estimates of 3.5%. However, fiscal deficit for FY2020 at 3.4% was ahead of market estimates and significantly ahead of 3.1% as mandated by the FRBM Act.

We believe that tight fiscal and monetary policy over the past few years coupled with major structural changes have taken a toll on growth and the dynamics are not conducive for an inflationary environment. On the contrary, we believe that slippage of 30bps for FY20 (in relation to FRBM mandated rate) was a much needed fiscal stimulus and would actually go a long way in addressing the current rural distress and stimulating growth without stoking inflation.

Budget was focused on addressing agri distress

The interim Budget was rural focused, which was on the expected lines, given the recent loss by the incumbent government in some of the key states like Rajasthan, Madhya Pradesh and Chhattisgarh. One of the primary reasons for the losses in the assembly elections was anger against the incumbent government for failing to address agri distress effectively

For the first time an income support scheme was introduced as conventional measures like MSP hikes and farm loan waivers have proved to be ineffective against addressing agri distress. Under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme, the government will transfer `6,000 per year to small & marginal farmers in three equal installments. The government has already allocated `20,000cr to the scheme for FY2019, while the budgeted outlay for the scheme is `75,000cr for FY2020.

This is over and above other subsidies like fertilizer and food wherein budget outlays have also increased for FY2020. The PM-KISAN scheme along with increased outlay in other schemes should address the issue of agri distress to some extent in FY2020 and we believe that the outlay for the scheme would increase and may subsume other schemes going forward.

Buoyancy in tax collections is heartening

The government was able to achieve fiscal deficit target of 3.4% in FY2019 without resorting to any major off balance sheet spending like that in FY2018.

Gross tax revenues grew by 17.2% against nominal GDP growth of 10.5%, which translates to tax buoyancy of 1.64x and is pegged at 1.23x for FY2020. We believe that with most GST related issues and rate cuts behind, government would be able to meet fiscal targets for FY2020 even if GDP growth is slower than budgeted 11% or there is some shortfall in disinvestments targets.

Given that inflation is expected to remain well below RBI’s mid range of 4% in FY2020, there is a real likelihood of nominal GDP growth coming in below expected growth rate of 11%. The farm package along with marginal changes in personal tax would provide a much needed fiscal stimulus in the backdrop of slowing nominal GDP growth.

Poll

How will the Interim Budget 2019 address the agrarian crisis?

Will Income Tax slabs for the middle class be raised this year?

Will Universal Basic Income Scheme be announced for the unemployed citizens of the country?

Do you think that the Government will cut tax rates for large corporates?

Could the Government hike import duties in order to encourage domestic manufacturing

Do you expect any sops for the real estate industry in order to boost sales?

Budget Report 2019

Interim Budget 2019

The interim budget is a report card on the income and expenses made last year and the proposed expenses likely to be made in the next few months until the new government takes over. An interim budget is presented by outgoing govt.

Normally, any government only presents five full fledged Union Budgets. That is because in the 6th year, the elections would be due and hence it would be futile for a government to present a full year budget that it cannot implement. Hence, the normal practice over the years has been to present an interim budget which is presented as a vote on account. The idea of a vote-on-account is to have a consensus approval for certain routine expenses to keep the government up and running. This is meant to take care of expenses only till the general elections are held and a new government is in place.

Deciphering the difference between interim budget and vote-on-account

As we explained above, the interim budget is presented with a view to have a vote-on- account for certain necessary government expenditure. In effect, the interim budget and the vote-on-account are one and the same. The tacit agreement is that the full budget cannot be presented as no government has presented the 6 th full budget in the absence of political clarity ahead of the elections. However, what the NDA government might attempt to do in the current year is to create the interim budget as a go-between a full budget and a traditional vote-on-account. For example, the Interim Budget may not contain too many drastic changes in the Finance Bill pertaining to direct and indirect taxes since implementation could become a challenge. However, the interim budget can be used to push through some pressing reforms on the agricultural front, alleviation of rural distress, infrastructure commitment etc. Essentially, the interim budget this year is likely to be used as a compromise document which will include some additional allocations that are likely to have a broad consensus from al l the parties irrespective of affiliations.

What is the exact need and role of an interim budget?

For the year 2019, the NDA government has already confirmed that the budget will be an interim budget, but it is more likely to be positioned somewhere between a vote-on- account and a full-fledged budget. What purpose will this budget serve?

  • It will be used to highlight the key achievements of the previous financial year in terms of revenues and the outcome budget on allocations. This can be a very important leverage for governments as they go into elections.
  • The government can also use the interim budget to highlight the performance of the fiscal deficit with the reasons for the same. For example, a higher fiscal deficit that is used to pump prime the economy could be good news for the economy and the markets. At the same time, controlled fiscal deficit with stagnating growth is not a great confidence builder. The interim budget can be used to strike that balance.
  • One of the reasons for not presenting a full-fledged budget is that governments may be inclined to use that as pre-election rhetoric. Generous amounts of loan waivers, rural spending, farm pricing etc can be used by the ruling parties as an election carrot. Quite often, if the government is not voted back to power then they can be held accountable for it. That is where the problem of rhetoric becomes slightly misleading.

An interim budget is normally seen as a stop gap measure. The idea is to ensure that the wheels of government are moving without giving any one party an inordinate advantage in the elections.


Difference between Interim Budget and Union Budget

Interim budgets, as the name suggest, have been a stop gap arrangement to ensure that funds are made available to run the government in the interim period till a new government is elected. The number of interim budgets in the past depended on the timing of the government formation. Out of the total 11 interim budgets that have been announced till date post independence, five have pertained to the temporary period before the elections while six were presented in the temporary period after the elections.

Highlights of a typical interim budget

    If you look at interim budgets in the past, there have been some common factors running through these interim budgets.

  • Most interim budgets have restricted to doing a review of the financials of the previous years and these interim budgets have typically avoided any drastic reforms on the economic front.
  • The main intent of the interim budget is to get the Vote on Account approved to ensure that the regular expenses of the government can be met.
  • Interim budget typically avoids making major changes to the Finance Bill as changes to direct taxes entail a detailed discussion and also the government may not be able to fulfil the promises if it does not continue in power

Looking back at the interim budgets over the years

    The concept of interim budgets and the restrictions around them are largely self-imposed. Finance ministers in the past have tried to adhere to some practices pertaining to an interim budget and these practices have stayed.

  • The convention of presented an interim budget was first started by India’s first finance minister, Shanmukham Chetty. He presented an interim budget for the intervening period before presenting the final budget in 1948, which also marked independent India’s first full-fledged budget.
  • Dr. Pranab Mukherjee who presented 2 interim budgets in independent India laid the ground rules for the presentation of interim budgets. Dr. Mukherjee opined that since the election marked the presentation by an outgoing government, democratic principles called for letting the new government frame the broad budget policy for the year.
  • Dr. R Venkataraman, who along with Pranab Mukherjee had the distinction of presenting 2 interim budgets, underlined the difference between a government in power and a government going into elections. Accordingly, an outgoing government should have less power to announce reforms in an interim budget compared to a new finance minister who is just using the interim budget to bridge the time gap.
  • Mr. Yashwant Sinha had the dubious distinction of presenting an interim budget that actually could not go through in toto. This was during the brief Chandra Sekhar regime when Yashwant Sinha became the finance minister for the first time. Since the Congress, which had backed Chandra Sekhar, had refused to approve a full budget, Sinha was forced to announce an interim budget. Sinha could never present the full budget as the government fell before that.
  • Sinha also presented an interim budget for the second time in 1998 when Vajpayee managed to form the government with outside support. Sinha had presented a vote on account ahead of the full budget. It may be recollected that this was the period that was marked by a slowdown after the second nuclear test led to sanctions in May 1998.
  • Ironically, Pranab Mukherjee, also made a departure from the practice by allowing leeway in fiscal deficit in his interim budget in 2008-09. To fund the welfare expenses, Mukherjee allowed the fiscal deficit to deviate from the FRBI targets. This period marked the announcement of the Rs.40,000 crore farm rescue package and also the fiscal deficit spilling gradually from 2.5% to above 6%.
  • P Chidambaram, perhaps, hit the nail on the head when he announced the interim budget in 2014. While he stuck to keeping status quo on direct taxes, his focus on reducing excise duties and other macro reforms continued even in the interim budget. We see that as the model that the incumbent government may also adopt in the interim budget 2019.

Interim Budget definition and history highlights

Interim budgets, as the name suggest, have been a stop gap arrangement to ensure that funds are made available to run the government in the interim period till a new government is elected. The number of interim budgets in the past depended on the timing of the government formation. Out of the total 11 interim budgets that have been announced till date post independence, five have pertained to the temporary period before the elections while six were presented in the temporary period after the elections.

Highlights of a typical interim budget

    If you look at interim budgets in the past, there have been some common factors running through these interim budgets.

  • Most interim budgets have restricted to doing a review of the financials of the previous years and these interim budgets have typically avoided any drastic reforms on the economic front.
  • The main intent of the interim budget is to get the Vote on Account approved to ensure that the regular expenses of the government can be met.
  • Interim budget typically avoids making major changes to the Finance Bill as changes to direct taxes entail a detailed discussion and also the government may not be able to fulfil the promises if it does not continue in power

Looking back at the interim budgets over the years

    The concept of interim budgets and the restrictions around them are largely self-imposed. Finance ministers in the past have tried to adhere to some practices pertaining to an interim budget and these practices have stayed.

  • The convention of presented an interim budget was first started by India’s first finance minister, Shanmukham Chetty. He presented an interim budget for the intervening period before presenting the final budget in 1948, which also marked independent India’s first full-fledged budget.
  • Dr. Pranab Mukherjee who presented 2 interim budgets in independent India laid the ground rules for the presentation of interim budgets. Dr. Mukherjee opined that since the election marked the presentation by an outgoing government, democratic principles called for letting the new government frame the broad budget policy for the year.
  • Dr. R Venkataraman, who along with Pranab Mukherjee had the distinction of presenting 2 interim budgets, underlined the difference between a government in power and a government going into elections. Accordingly, an outgoing government should have less power to announce reforms in an interim budget compared to a new finance minister who is just using the interim budget to bridge the time gap.
  • Mr. Yashwant Sinha had the dubious distinction of presenting an interim budget that actually could not go through in toto. This was during the brief Chandra Sekhar regime when Yashwant Sinha became the finance minister for the first time. Since the Congress, which had backed Chandra Sekhar, had refused to approve a full budget, Sinha was forced to announce an interim budget. Sinha could never present the full budget as the government fell before that.
  • Sinha also presented an interim budget for the second time in 1998 when Vajpayee managed to form the government with outside support. Sinha had presented a vote on account ahead of the full budget. It may be recollected that this was the period that was marked by a slowdown after the second nuclear test led to sanctions in May 1998.
  • Ironically, Pranab Mukherjee, also made a departure from the practice by allowing leeway in fiscal deficit in his interim budget in 2008-09. To fund the welfare expenses, Mukherjee allowed the fiscal deficit to deviate from the FRBI targets. This period marked the announcement of the Rs.40,000 crore farm rescue package and also the fiscal deficit spilling gradually from 2.5% to above 6%.
  • P Chidambaram, perhaps, hit the nail on the head when he announced the interim budget in 2014. While he stuck to keeping status quo on direct taxes, his focus on reducing excise duties and other macro reforms continued even in the interim budget. We see that as the model that the incumbent government may also adopt in the interim budget 2019.

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Any given/above recommendations are back by Angel Broking's Research Team. The recommendations should not be construed as investment or financial advice. Each recipient should make an independent investigation as they seem necessary to arrive at evaluation on investment in securities referred above.

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