Published on 29/01/2019 10:49:24 AM | Source: Religare Securities Ltd

Pre-budget view 2019 - Interim Budget 2019: Will the FM deviate from the usual.? - Religare Sec

Posted in Top Stories| #Union Budget #Religare Securities Ltd

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* Interim Budget 2019: Will the FM deviate from the usual…?

The incumbent NDA-led government will be presenting the Interim Budget (also known as a "Vote-on-Account") on February 1, 2019. While it is widely known that the broad purpose of an Interim Budget is different from the usual Union Budget, nonetheless, expectations from the Finance Minister (FM) always remain high. Moreso, this time around, as the current government has time-and-again deviated from the convention. Notably, the FM would be presenting this Budget amidst challenging times for the Indian economy resulting from various factors, both internal and external. Nonetheless, with the General Elections due in May-June 2019 to be on FM’s mind, he would try not displease any section of the society.


* What is a Vote-on-Account?

Vote-on-Account is a statement by the Finance Minister to seek Parliament's approval for the obligatory expenditure the government has to incur to keep the government machinery running until the next government takes charge post the General Elections in May 2019 and presents a full-fledged Budget around July 2019.

Technically, while there is no bar on the current government to present a full-fledged Budget as per the Indian Constitution, however, the current government's full-next-year revenue/expenditure projections and proposed policy changes may or may not be acceptable by the next elected government, assuming there is a change. Therefore, a Vote-on-Account is opted for.


* So, will the Finance Minister take liberties in the Interim Budget?

While the Finance Minister has the option to present a bold Interim Budget, historically, Interim Budgets have refrained from laying down any major policy changes. No large-scale capital projects or major changes in tax structure are announced in this budget. However, having said this, considering the missing feel-good factor in the economy and the compulsive political scenario which the government may take into consideration post the recent State Elections outcome, the expectations are running high that the FM may pull-off a populist budget this time around. The incumbent government is also likely to convey an economic policy that they plan to follow if they are re-elected for a second term.


* Broadly, we expect the government to stick to the (pre-Election) primary agenda of:

* focus on agriculture and irrigation                   * measures for the MSME segment

* promote rural development                             * focus on health and education, etc

*  focus on employment generation                  * continuation of social welfare schemes

Considering that 2/3rd of the Indian electorate continues to reside in rural India, by focusing on the above measures, the government would aim at taking care of a substantial chunk of its electorate.


* Will the government tinker with taxes?

For the common man, budget equals taxes, and the expectations primarily revolve around greater disposable income in hand. With the implementation of GST a few quarters back, the anxiety related to indirect taxes (especially on household items, consumer durables, etc.) is now a thing of the past and thus greater disposable income for a common man can now primarily be achieved by reducing the tax rates or increasing the personal tax exemption limits or a bit of both. Notably, the previous budget did not tinker with income tax / corporate tax rates in wake of the greater focus on the social elements of the economy and a tight fiscal situation amidst unsatisfactory GST revenue collections.

While not much has changed since, as the shortfall from GST collection will continue to create uncertainties for direct tax revenue and consequently the fiscal deficit, the expectations continue to revolve around more favourable income tax slab limits i.e. NIL tax from the current Rs 2.5 lakhs to Rs 5 lakhs. Increase in personal income tax exemption limit under Sec. 80C from the current Rs 1.5 lakhs to Rs 2.5 lakhs and tax deduction limit increase from Rs 2 lakhs to Rs 4 lakhs for housing loans are also present in the wishlist. A larger benefit to the corporate sector through broad-based tax rate cuts or extending the ambit of the 25% tax rate to companies with a larger turnover of upto Rs 500 cr is also being expected.


* Focus likely to be on stimulating the economy and consumer confidence

Considering the current scenario wherein the economy is running at sub-optimal utilization levels, we believe the government may concentrate on measures that would act as a stimulus to the economy and to consumer confidence, which is the primary need of the hour. Thus, sustained spend on programs that create greater employment, some measures for export-led industries, Medium & Small Enterprises (MSMEs) and labour-intensive industries, which have been affected, are likely to be on government radar.


* Government priorities different; fiscal target may be overshadowed

Further, with the government priorities different at the current juncture, we expect focus on fiscal imbalances to be overshadowed by measures aimed at re-invigorating the economy. However, considering the limitations under which the government would be presenting this Budget and significant pressure on the exchequer in wake of lower-than-expected GST and divestment collection, it would be interesting to see how the government balances between the expected measures and the financial commitments that would arise of it.


* To conclude…

While the finer details would be known soon, the one thing that would remain unchanged even post the Interim Budget is the fact that India has embarked on a growth path, notwithstanding the near-term pressures. India would continue to remain amongst the fastest growing major economies in the world, which is enough-a-reason for the world to maintain their focus on India


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