Key macroeconomic announcements
- PM Kusum scheme will be expanded to cover 20 lakh farmers to provide stand alone solar pumps
- The government has estimated nominal growth for the fiscal year 2020-21 at 10%. The inflation will have to be netted to arrive at real rate of GDP growth and that is likely closer to the range of 5.5% to 6% depending on the nominal growth actually achieved.
- The 50 bps leeway on fiscal deficit has been used by the government for the next two years. For 2019-20, the fiscal deficit will be 3.8% instead of 3.3% and for 2020-21 it will be 3.5% instead of 3%.
- To improve post harvest infrastructure, including cold storage, the budget has announced viability funding based on public-private-partnership. This cold chain plan will be coordinated with the Indian railways.
- The budget has laid a major thrust on milk production and fisheries. The milk output is estimated to be doubled in two years while fish production target has been set at 20 lakh tonnes by 2022-23. Budget estimates fish exports at Rs.1 trillion by 2024-25.
- Infrastructure outlay of Rs103 trillion over 5 years to be intact. Budget will undertake corporatization of one major port and four station redevelopment project. In addition, 100 more airports to be instituted under the UDAAN scheme.
Industry, MSMEs and Trade
- Budget has outlined plans big plans for manufacture of mobile phones and electronic equipment and semiconductor packaging. The 15% concessional tax will also be extended to the power sector, apart from the existing benefit to manufacturing.
- With a view to push business, the budget has also announced end-to-end facilitation through an investment facilitation cell. NIRVIK scheme for higher export credit disbursement also launched.
- Big news for MSMEs in the Union Budget comes in the form of invoice financing by extending the Factoring services, scheme for subordinated debt to MSMEs and handholding of MSMEs in the early stages.
Impact on Capital Markets
- Capital markets are likely to be largely disappointed that the LTCG on equity stocks and equity funds was not scrapped. That continues despite the cascading effect of STT plus LTCG tax. The budget did not make any changes to that.
- The DDT has been scrapped on equity and on equity funds. However, the dividend distribution tax on debt funds will continue as before. The DDT will now be replaced by the old system wherein the dividends were taxed at the marginal peak rate of the investor.
- The income tax limits have been rationalized in such a way that the people earning in the range of Rs.5 lakh to Rs.15 lakhs will see reduction in taxes. Most of these assessees prefer to pay tax rather than to invest and hence this could be a consumption boost. This will be positive for consumption stocks.
- The proposal to set up apprenticeship courses in over 150 educational institutions will ensure that there is no shortage of skilled manpower and that could be a big positive for the soft aspects of the capital markets.
- The extension of the 15% concessional tax on manufacturing to all domestic companies including the power sector could again be an incentive for the manufacturing sector and could positively impact capital markets.
Direct Taxes impact
- To an extent, the direct tax regime is being complicated. Now there will be two regimes, with the first regime focusing on the status quo where you have all exemptions and rebates available; the second will be the new regime with lower rates applicable but where individuals forfeit all exemptions.
- The loss of exemptions could be a big cost for individuals since many exemptions in Section 80C are virtually mandatory like life premiums, provident fund, tuition fees, home principal, etc. Also if Section 24 is removed then it becomes counterproductive.
|Income bracket||Below 5 lakh||5-7.5 lakh||7.5-10 lakh||10-12.5 lakh||12.5-15 lakh||Above 15 lakh|
|Tax Rate (%)||Zero||10||15||20||25||30|
The good news is that if you opt for the second option of concessional tax, then your IT form will be auto-filled. That simplicity could be the big takeaway.