Interim Budget – 2019

An Analysis

Deepansh Goyal UM18265 Economic Enviorment of Business

INTERIM BUDGET: Election Manifesto in
Disguise
Fiscal Deficit targeted to remain at 3.4%. All thanks to Great
calculation of 11.5% growth in GDP!

Key tax proposals

Personal Tax
While there are no changes proposed in personal Income Tax rates and slabs, the Government has
made certain key proposals to provide relief to small taxpayers, especially to middle class and
salaried earners in the form of:

• Rebate on tax for total income of up to INR 5, 00,000 for individuals

It is a rebate and not exemption

Proposal on taxable income and not gross income hence can claim tax saving schemes

Current income tax laws say that the incremental tax cannot be more than the increase in income.
However, going by the proposed budget changes, there is disconnect regarding the marginal relief
for small taxpayers.

• Increase in standard deduction from INR 40,000 to INR 50,000 for salaried employees.

Every class of salaried taxpayer will be benefited by the proposed increase in standard deduction.

• Relief for owners of more than one house; second self-occupied house not to be subject to tax on
deeming/notional basis; aggregate deduction of interest on home loan for self-occupied properties
retained at INR 2,00,000

As proposed in the budget there will be no income tax levied on deemed rent from second self-
occupied house. However, total home loan interest deduction has been limited to Rs. 2 lakh for
both houses together.

• Prescribed monetary threshold for deduction of tax (TDS) on interest from bank or Post Office
deposits increased from INR 10,000 to INR 40,000.

This will result in greater convenience- Filling of Form 15G

GST
Exemptions from GST increased from turnover of 20lakh to 40lakh.

Agriculture/Farm sector/Animal Husbandry

• Total allocation for the Agriculture sector has seen an increase of 73% over 2018-19 (Revised
estimate).

• The Government announced the Pradhan Mantri Kisan Samman Nidhi (PMKISAN) scheme, which is
yet to be figured whether it is “Kisan Samman or Apmaan”, which will provide a guaranteed income
of INR 6,000 per year to small and marginal farmers. This will involve an annual outlay of INR 75,000
crore, which is around 0.36% of the GDP (2019-20 Budget estimate). (A Drop in bucket)

Let us delve deeper to know the ground reality

The scheme will not cover tenant or landless farmers or labourers, which number almost 140mnc-
according to provisional data of agricultural census 2015-16.

Credible database of landholding a big task

The real danger of short-sighted policies, such as cash transfer and loan waivers, despite being
politically attractive, is that these take precious resources away from investments that could have
boosted farm incomes in the long run.

The scheme has been implemented with retrospective effect from December 2018 and the first
instalment is expected to be transferred to the bank accounts of farmers before March 31. Barring
a few states, land records in most parts of the country are shabbily maintained. Therefore, Centre
will have to depend on secondary data from other schemes like soil health card and the Prime
Minister Fasal Bima Yojana to identify beneficiaries. The secondary data may not be foolproof and
it is even unlikely to be available for the entire 12 crore in such a short period as by March.

• Interest subvention of 2% was announced for farmers affected by natural calamities. An additional
3% relaxation will be given for timely repayment of loans. This scheme has also been extended to
farmers engaged in animal husbandry and fishery-related activities, and availing loans through Kisan
Credit Cards.

This would raise non cultivation income as around 25% of an average farmer’s income is from
livestock.

Animal Husbandry and Fisheries Sector:

India is the second largest fish producing nation in the world accounting for 6.3% of global
production, registering an average annual growth of more than 7% in recent years.

The sector provides livelihood to about 1.45 crore people at the primary level. To provide
sustained and focused attention towards development of this sector, the government has decided
to create a separate Department of Fisheries.

To provide a further push to the animal husbandry and fisheries sector, the Union Government
has decided to increase allocation to the Rashtriya Gokul mission to Rs 750 crore in the current
year itself.

Social Sector
1) Insufficient budget for MGNREGA
INR 55000 last year + INR 6084 crore additional

Outstanding amount left: INR 7500 crore approx.

This Year 60000 allocated which would not suffice the requirement rather it will add up to
the previous year outstanding.
 2) Pension for Unorganised workers - Rs3000 per month
Rights group says contributory pension schemes are set to fail since those targeted find
the monthly payments too high.
Also, If calculated, taking into account core inflation over the past ten years, the real value
of the, monthly assured figure of Rs3000 comes down to around 500 rupees, by the time a
person entering the labour force retires decades from now.
But in a way the scheme will attract the massive workforce that remain outside the
purview of formal banking and insurance industries to get themselves registered for the
same.

3) New Pension Scheme: Contribution by govt has been raised to 14% from 10% = More savings
for salaried employees which they’ll receive on retirement.

4) Allocation for child development INR 23357Cr. to INR 27584Cr. rural development and in the
social welfare sector increased marginally which implies the continuity of pre-existing
schemes.

Education
--National Education Mission was allocated a budget of ₹385.72 billion (US$5.4 billion) in 2019
Interim Budget of India. The mission comprises of four schemes viz. Sakshar Bharat, Sarva Shiksha
Abhiyan, Rashtriya Madhyamik Shiksha and teacher training programs. Such allocation is a positive
move.

A narrative has also been created that inadequacy of resources is no more a factor for poor quality
of education in school. It is the under-utilisation of resources by the states, which has created this
sorry state of school education. Since last few years budgetary allocation in absolute terms for
education seems to increase but when it is compared to country’s GDP it has been showing a
declining trend. Due to the tug of war between Centre and states, the 60 percent children who are
heavily dependent on public provisioning of school education suffer and are denied of availing
their fundamental rights and entitlements.

Infrastructure
1) Road – allocated Rs 19000 Crore for building rural roads for FY 2020.
2) Electricity – Saubhagya Yojana, free electricity connection to almost every household. By
March 2019, all willing families will get electricity connection.
A comparable number of instances where beneficiaries rejected connections because of
their inability to pay monthly bills. Not surprisingly, these households were classified as
‘unwilling’, and added to the section of electrified households, thereby inflating the
numbers. This gross misrepresentation must be acknowledged.
3) New Airport in Sikkim, Air connectivity to Arunachal Pradesh
4) Rail connectivity to Mizoram, Tripura and Meghalya
5) Inland Waterways for the first time from Varanasi to Haldia
6) Railways: 1.58 lakh crore
7) Roadways : 83000 crore
Services

Banking / Insurance
Threshold limit for TDS on Bank/Post office Deposits raised from INR10000 to INR 40000.

Boost liquidity for Banks. Higher disposable income with common people. Higher deposits with
banks.

The Government aims to provide assistance to all farmers affected by severe natural calamities from
the National Disaster Relief Fund (NDRF). Under this, the farmers will be provided the benefit of
interest subvention of 2% and prompt repayment incentive of 3% for the entire period of reschedule
of their loans.

Provision of 2% interest subvention to farmers pursuing activities of animal husbandry and fisheries
who avail loan through Kisan Credit Card. Further, an additional 3% interest subvention will be
provided for timely repayment of loan.

The Interim Budget announcements to provide interest rebate and subsidy will cause additional
stress to the already troubled banking sector affecting their earnings. At the same time the
announcement to offer prompt repayment incentive to the farmers may help banks address the
problem of stressed assets on their balance sheet by enabling them to recover their outstanding
loan amount.

Media & Entertainment

The Government has proposed single window clearance for ease of shooting films to Indian
filmmakers.

Regulatory provisions for single window clearance will rely more on self-declaration.

Proposal to introduce anti-camcording provisions in the Cinematograph Act to curtail piracy.

Manufacturing

Consumer Goods
While there is no direct announcement in the budget for the consumer goods sector, various
announcement towards middle class and farmers are likely to provide a push to the demand for
consumer goods. More money in the hands of the consumers along with social security steps
announced in the Budget should give more disposable income to the consumers, thereby
impacting the sector positively.

Metals & Mining (incl. Cement)

Thrust on infrastructure development specially in North east

Cut in custom duty for components and parts of electric vehicles

Increased allocations in PMGSY

Flat steel product companies are expected to benefit from the tax concessions, pension scheme
and farmer scheme. The thrust in overall infrastructure sector would generate demand for metals.
Usage of fibre optic cables for digitisation and demand from power and automobile sectors will
spur demand for base metals like aluminium and copper.

MSMEs
Facility created for loan up to 10mn. In 59minutes.

2% interest rebate for GST registered entity

Government had also increased the share of government procurements from MSMEs through the
Government e-Marketplace (GeM) to 25 per cent, including 3 per cent from MSMEs run by women.

The only scheme which at least considered presence of women in the country.

Provisions relating to interest rebate will encourage more MSMEs to register under GST, which will
promote compliance under GST, expand the tax base and boost formalisation of the economy.
Improved access and the reduced cost of credit will lower organisations’ production costs and
make them more competitive. With the implementation of the GeM platform, MSMEs will have
access to a larger market.

Pharma & Healthcare

Rather than increasing the number of institutions (AIIMS) it should first be ensured that the existing
ones are functioning as required.

Ayushman Bharat Scheme – 10lac people have took medical treatment benefit last year which saved
around 3000 crores, allocation this year is increased to 64bn. from 24bn. an additional allocation of
250 crore rupees is provided under National Urban Health Mission for building Wellness centres.

Rashtriya Swasthya Bima Yojana which provides health insurance to BPL saw an increase of 142% in
budgetary allocation to 6556crore.

Real Estate and Construction

In the Affordable Housing sector, benefits under Section 80-IBA of the IT Act were extended by a
year for projects approved till March 2020. This will allow Real Estate developers to deduct 100% of
profits derived from development of affordable housing projects. Extension of exemption period
from levy of tax on notional rent, on unsold inventories, from one year to two years, from the end of
the year in which the project is completed.

Proposal to increase the benefit of rollover of capital gains under section 54 of the Income-tax Act
from investment in one residential house to two residential houses for a tax payer having capital
gains up to ₹ 20mn. This can be availed once in a lifetime.

The government has given a much needed impetus to the real-estate sector by providing incentive
for supply and demand. The move will push the real-estate market players to invest in affordable
housing projects. A two-year tax exemption window on notional rent on unsold inventories will
enable the real-estate players to reduce their losses. On the demand side, the budget
announcement of income tax benefit from notional rent and capital gains benefit from investment
in the second house is expected to accelerate the demand for housing.
Defence
In dollar terms, India’s defence spending is less than it was last year because of depreciation. This
year’s budget allocates about Rs.3.05 lakh crore ($43 bn.) for defence spending, most of which is
eaten up by recurring costs that squeezes the money available for new arms purchases.

Last year the government allocated about 2.85 trillion rupees amounted to roughly $44.5bn. That
stagnation matters, because India is one of the world’s largest weapons importers. Effectively, the
Indian govt is compensating for depreciation and inflation, and will likely still sell this as an
increase in defence spending.

Other Key Facts

Start-up Hub: Out of 15000 start-ups incubated by govt. in last year only 130 were able to get
funding. You can calculate the success rate of the so called Start-up HUB!