As expected, FM announced strong measures to boost liquidity to revive NBFC space, increased focus on agriculture & infrastructure and also social infrastructure, recapitalisation for PSU banks, housing, and increased divestment target to Rs 1.05 lakh crore.
In the budget, the Finance Minister on July 5 announced many measures to revive the economy.
Overall most analysts feel the budget is a longer-term path set by the Modi government while maintaining fiscal consolidation.
“The budget has nothing in it that would move the market immediately but the long term path that it has endeavoured to lay for the country should ensure sustainable high rates of GDP growth in the years to come,” Raghvendra Nath, CFA & Managing Director at Ladderup Wealth Management told businessleague.
Markets, however, did not receive the budget very well and most of the sectors ended lower, though few like FMCG and banks ended in the green. Here are how much sectors got from the budget:
Gainers
Infrastructure: The government intends to invest more than Rs 100 lakh crore in the sector in the next five years. It also proposed to increase the bond market participation in the infrastructure sector.
As resource mobilisation for the sector, the government also proposed to increase road and infrastructure cess by one rupee a litre on petrol and diesel. This will generate more funds for infrastructure investment.
Railways: The government will spend Rs 50 lakh crore in the railway sector between 2018 and 2030. It is estimated that railway infrastructure would need capital expenditure outlays of around Rs 4 lakh crore per annum.
Aviation: Under UDAN scheme, more than 100 airports are operating in India. The number of aircraft has also increased. To attain self-reliance, India will enter into aircraft financing and leasing market.
Proper policy initiatives to be taken to bring maintenance, repair and overhaul (MRO) activities to India resulting in savings in forex exchange. The budgetary support for central sector schemes/projects has been reduced from Rs 9,900 crore (RE) to Rs 4,500 crore. It seems reduction has been done to increase private sector participation under PPP mode.
Roads: Bharatmala II will be launched to develop state highways. The government has increased its focus on rural roads with 97 percent villages being connected. It proposed to lay and upgrade 1.25 lakh km of rural road length over the next five years, with an estimated cost of Rs 80,250 crore.
Electric vehicles: Fame II has been rolled out with outlay of Rs 10,000 crore. The government also proposed income tax deduction on interest paid for the purchase of electric vehicle up to Rs 1,50,000 per annum.
Power: The government proposed to create a National Grid for electricity. It also proposed to set up a high-level empowered committee to look into the retirement of old and inefficient power plants and address low capacity utilisation of gas-based power plants.
The FM said about 35 crore LED bulbs that were distributed have led to savings of Rs 18,341 crore per annum. The distribution scheme will be expanded to solar stoves and battery charger in the country. For this, she also increased allocation to the concerned ministry.
Water: The government proposed to create National Waterways to increase transportation of man and materials by water leading to a reduction in cost and savings in foreign exchange. It also proposed to set up Jal Shakti Mantralaya integrating with a target to provide piped water to all rural households by 2024. The government is also looking to increase investment in water harvesting, water management/ treatment.
NBFCs and HFCs: Top rated NBFCs will receive enhanced liquidity, as the government said it will provide a one-time 6-month partial guarantee of Rs 1 lakh crore to state-run banks for purchasing consolidated high-rated pooled assets of financially-sound NBFC’s. The sovereign will be covering their first loss by around 10 percent.
Tourism: Government proposed to build 17 iconic sites to encourage the arrival of tourists in India.
Affordable homes: FM proposed to allow an additional deduction of up to Rs 1.50 lakh for interest paid on loans borrowed up to March 31, 2020 for purchase of an affordable house valued up to Rs 45 lakh. Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs 3.5 lakh. This will translate into a benefit of around Rs 7 lakh to a middle-class home-buyer over his/her loan period of 15 years.
Insurance: The government’s move to increase the FDI limit to 100 percent in insurance intermediaries will ensure higher penetration of insurance products in the country, and this will facilitate in further opening up of the Indian economy.
Retail: Local sourcing norms will be eased for FDI in the single-brand retail sector.
Cigarette: FM imposed nominal excise duty on cigarettes in this budget. This was actually a relief as the increase in duty was expected to be much higher.
PSU banks: Government announced infusing Rs 70,000 crore in PSU banks for the financial year 2019-20, which will boost lending.
Losers
Gems and jewellery: The gold import duty has been increased from 10 percent to 12.5 percent that indicates government’s move to discourage import of physical gold and promote digital gold in the form of ETF, Gold Bonds, etc.
Gold demand in India may drop further as gold prices are already at multi-year highs and jewellery will become unaffordable to small pocket households.
Oil retailers: The government has proposed to apply an infrastructure cess and a special additional excise duty of Re 1 each per litre on petrol and diesel (effectively amounting to Rs 2 per litre), which will result in higher fuel prices to the end consumers but also contribute towards additional tax revenues for the government.
Fertilisers and agrochemicals: Zero Budget farming aims at ending the reliance of farmers on loans and reducing their production costs and in turn ending the debt trap (debt cycle) for farmers. The word ‘budget’ refers to credit and expenses and hence ‘Zero Budget Farming’ means farming that is free of any loans, credits, and expenses on purchased inputs (like seeds, fertilizers, chemicals etc.).
The emphasis on ZERO budget farming aims to double farm income, especially by reducing loan burden and getting the farmers out of the trap.
Auto: Increasing the fuel cost and encouraging the adoption of electric vehicles will adversely affect the traditional auto companies. The sector has already been struggling for last few quarters and this budget is far from ideal for them.
Luxury products: The government proposed increase surcharge on individuals having taxable income from Rs 2 crore to Rs 5 crore and Rs 5 crore and above so that effective tax rates for these two categories will increase by around 3 percent and 7 percent respectively, which will ultimately impact luxury or premium products.
This article is based on the inputs from Equirus Capital, Sameer Kalra of Target Investing, Prasun Sikdar of ManipalCigna Health Insurance Company, Gaurav Garg of CapitalVia, Abhishek Bansal of ABans Group.
