Decoding Interim Budget 2019: 10 takeaways from fineprint reading

The Modi government’s last Budget turned out to be tall on promise but shallow in substance. That’s the key takeaway one gets after analysts on Dalal Street and economists at top accounting houses read the fine-print to decode the real benefits and impact of the myriad sops and schemes unveiled by interim Finance Minister Piyush Goyal.

We picked 10 top observations from these analyses.

I-T bonanza that wasn’t

The Budget proposed to reduce the burden on the middle class by raising the income-tax threshold from Rs 2,50,000 to Rs 500,000. Standard deduction limit for the rest has gone up from Rs 40,000 to Rs 50,000. But the fine p rint says this will only benefit only those in the lower income bracket. Clause 8 of the Finance Bill seeks to amend Section 87A of the Income-Tax Act to provide relief to individual taxpayers by increasing the maximum amount of tax rebate to Rs 12,500 from Rs 2,500. The rebate will be admissible to taxpayers having total income up to Rs 5,00,000 instead of Rs 3,50,000 earlier. It means the benefit will be available only to those with total taxable income of less than or equal to Rs 5 lakh after availing all the deductions, while there is no change in the tax structure for those in the higher income brackets.

Other benefits for taxpayers
Interest income up to Rs 40,000 in post offices and banks was made tax free. 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. Income tax relief on notional rent from unsold houses extended to 2 years from 1 year

Mega pension scheme that's mini in size
Under the pension scheme for unorganised sector workers, the FM unveiled the New Pradhan Mantri Shram Yogi Maandhan Yojana for people with income up to Rs 15,000 a month. The beneficiaries will get Rs 3,000 a month pension after retirement against a contribution of Rs 100 per month. The Finance Minister said the scheme may become the world’s biggest pension scheme for unorganised sector in five years, but allocated only Rs 500 crore for FY20. Economist Swaminathan Aiyar said the mega pension scheme is actually a mini pension scheme.

Deficit math that disappointed Street
The budget pegged the fiscal deficit for the financial year ending on March 31, 2019 at 3.4 per cent of gross domestic product (GDP), slightly higher than the targeted 3.3 per cent. The deficit target for 2019-20 has been set at 3.4 per cent, instead of an earlier target of 3.1 per cent, but the FM promised to bring the deficit down to 3 per cent in the next two financial years. “The fiscal deficit flat at 3.4 per cent of GDP is a sharp deviation from fiscal consolidation roadmap, which is a disappointment. The consequent numbers of both net and gross market borrowings seem higher than market expectation,” said Upasna Bhardwaj, senior economist at Kotak Mahindra Bank in Mumbai.

Assured income that's not quite support
Rs 6,000 per year assured income support offered for small and marginal farmers. But that boils down to Rs 500 a month, which is miniscule. Farmers affected by natural calamities to get 2% interest subvention and additional 3% interest subvention upon timely repayment. Schemes leave out landless farmers as well as the urban poor.

Railways stocks get mixed feeling
The Finance Minister allocated Rs 64,587 crore to railways for financial year 2019-20. It pegged operating ratio at 96.2 per cent in FY19 Vs 95 per cent in FY20. Railway’s capex for FY20 was set at a record Rs 1.6 lakh crore. But all railway stocks showed mixed feeling to the Budget announcements, with most of them ending down.

Bond mart in two minds
The bond market will have to grapple with the higher market borrowings, which the government pegged at Rs 7.1 lakh crore in FY20. The bond market is faced with a mix of push and pulls factors. While the extremely muted headline inflation, stable external account dynamics and dovish bias in key global central banks augur well for the Indian debt market, the high gross market borrowing and the large emphasis on off budget borrowing requirement would prevent a material rally in the yield.

Equity market impressed, but not so much
From an equity market perspective, the Budget is seen as a positive event because of the focus on income-enhancing measures. But barring real estate, there was hardly anything tangible for other sectors. Real estate stocks rallies. Market’s focus will now shift back to global cues, political developments and earnings.

BJP’s 10 on 10
BJP MP and Union Minister Jayant Sinha gave the Budget 10 out of 10 because it addressed all of the needs in the economy. “We have to respond to some of the challenges that we are facing and we have responded to those challenges with the support that we are providing to the rural sector, for middle class consumption and the further buildout of the social safety net. These were very important requirements at this stage in the economy.

Congress’ criticism
The income-tax exemption and higher standard deduction are good for the middle class, but they are only giving back to the middle class what they have been unjustly taking from it. “I am not so sure you should be granting them a certificate of good housekeeping quite so easily,” says Shashi Tharoor.