Proposals hurt no one, please everyone, and yet are pragmatic

By Raamdeo Agrawal

At the outset, the budget is of course populist — nothing less could (and should) be expected in an election year. Going by Piyush Goyal’s own numbers, 12 crore small-and-marginal farmers, 3 crore urban middle class, and 42 crore unorganised workers are direct beneficiaries of the budget. Considering their families, that’s nearly the entire electorate!

And yet the budget is pragmatic.


First, the budget giveaways do not rock government finances. FY19 fiscal deficit at 3.4 per cent is only fractionally higher than the budgeted 3.3 per cent. The 3.4 per cent figure has been maintained for FY20 as well.

Second, the budget hurts no one, and is positive for all the right constituencies — farmers, unorganised workers and the middle class — whose issues need to be addressed, election year or not.

Third, the budget has some farreaching non-cash benefits for tax payers. Raising of TDS threshold on interest from Rs 10,000 to Rs 40,000 is a significant trouble-saver for small depositors. Going forward, Goyal talks of a path breaking, technologyintensive project to transform the income-tax department into a more assessee-friendly one, where all returns will be processed in 24 hours and refunds issued simultaneously.

Fourth, there’s a stimulus package for the real estate sector. (Rollover of capital gains has been increased from investment in one residential house to two residential houses; tax benefits for affordable housing projects have been extended for one more year; exemption from tax on notional rent on unsold inventories has been extended from one year to two years after the project is completed.) These measures could help revive the real estate sector, which in turn could lead to derived demand for other sectors like cement and steel.

Finally, Goyal took the opportunity to effectively package the government’s past achievements and also lay out a 10-dimensional, 10-year vision statement through 2030, almost taking for granted the present government’s next two terms at least!

What does the budget mean for sectors and stock markets? Speaking of direct impact, the budget hands out cash benefits of about Rs 1 lakh crore — Rs 75,000 crore income-support for farmers (Rs 6,000 per annum for 12 crore farmers) and Rs 23,000 crore tax saving for the middle class (standard deduction raised from Rs 40,000 to Rs 50,000, and zero tax for income up to Rs 5 lakh).

This works out to about 0.5 per cent of GDP, which is not too significant. Still, given the high propensity to consume, expect the entire amount to immediately come into the consumption market.

The beneficiaries are the usual suspects — consumer staples and small-ticket durables, including two-wheelers on the margin. The real estate sector is another beneficiary, marginally.

The budget has an indirect impact, too. Fiscal deficit of 3.4 per cent combined with low inflation (read high real interest rates) creates enough headroom for favourable monetary action by the Reserve Bank of India.

With this sentimentally positive budget out of the way, expect the markets to be led by the next three immediate triggers — next week’s monetary policy, earnings growth, and the expectations of the outcome of the General Elections.

The author is Cofounder, Motilal Oswal Financial Services.