Union Budget 2019-20; the backdropThe Union Budget comes at a time when domestic and global challenges are high. Global oil prices fluctuated between $60/bbl and $75/bbl, and the trade deficit has already crossed $15 billion in May. IIP did show some greenshoots at 3.4% in April, however, GDP growth for the March quarter had fallen to a low of 5.8%. The global trade war is slowing exports, which have fallen to merely 3.93% in the month of May. In the midst of all these headwinds, Indian debt funds are facing the biggest debt crisis in recent memory.
Key expectations from Union Budget 2019-20
Broadly, this budget is likely to be different in that there are some unique requirements it is expected to address:
- Based on the discussions that the FM has had with bankers and the RBI, it looks like the special funding window for NBFCs could become a reality. Of course, this will come with conditions. The government is likely to make a distinction between liquidity and solvency and only help the former. A tighter regulatory regime for NBFCs could also be on the cards, considering the issues in the form of corporate governance, disclosures, and maturity mismatch.
- For MSMEs, greater synchronization of GST methodology to address the needs of the MSME sector is likely. The mandatory payment of MSME dues by corporates within 45 days could be extended to government departments too. The budget could also insist on the IT department to issue all TDS refunds for MSMEs within 45 days. Simplifying GST compliance could be another step.
- Fiscal deficit could be the grey area, however, the government will have to move towards the 3% target over the next two years. In the current year, the government has exhausted 22% of its full-year fiscal deficit in April itself. It is surely going to be a tightrope walk, but restrained fiscal deficit is a must to sustain global investor confidence.
- Income tax slabs have been tweaked in the interim budget, and not much change is expected. However, in an attempt to push housing, the government is expected to expand the Section 24 benefits for home loan interest beyond Rs2 lakh. Capital gains exempt infrastructure bonds could make a comeback.
- There have been demands for a cut in corporate tax rate from 30% to 25%. This was promised back in 2014 but never materialized. While resources could be a constraint, this one move could give a big boost to GDP growth and may be a risk worth taking.
Finally, the 6.1% unemployment number is not lost on the government. Nirmala Sitharaman has herself affirmed in pre-budget discussions that the budget will have very strong jobs focus. This could include a boost to industry, exports, MSMEs, and agricultural sector.
Impact of full budget on Nifty 50How will the budget impact the Nifty? A pre-budget Nifty rally looks challenging as the psychological level of 12,000 needs to be breached decisively. Global headwinds are considerably strong currently. Yet, a reformist tilt to the budget with a dose of consumption boost could be the panacea that the markets are looking for.