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Economy

Budget2019: A Quick Look at What Happened

Budget-2019-Interim.png

We’ve live tweeted the Budget 2019, the interim budget till the full one in July after elections: (Click it for the whole thread)

We’re going to post a lot more on the budget, but here’s a rough set of thoughts:

  • The big thing is the PM Kisan yojana. This is an income of Rs. 6,000 per year to every farmer having less than 2 hectares of land. This encompasses about 12 cr. households, a spend of over Rs. 75,000 cr. While the amount looks large, it is actually better for the government to do this and help rural incomes (will likely add about 5% to their income) than to try do this through loan waivers or by food subsidies. The cost is big, and some of it comes in the current year too (20,000 cr. in the next two months).
  • There’s a pension program for the unorganized sector, and a bunch of interest rate subventions for the fisheries sector, and farmers affected by natural calamities. This isn’t very expensive, but has a good face value.
  • On taxes there’s a small set of things – nothing on GST, but there’s a lower income tax for people who earn upto Rs. 5 lakh in taxable income. For most cases, upto Rs. 7 lakh of income, you will pay no tax. That’s nearly Rs. 60,000 per month you can earn without having to pay the government anything. Above that, the rates remain the same and slabs haven’t changed. We will clarify.
  • There’s a bunch of housing related announcements : you can have a second house without paying tax on notional rent, and then you can buy two houses (instead of one) if you have capital gains when you sell a house, and pay no capital gains tax. Builders get certain benefits too – they have no notional rent for two years after completion on unsold inventory, and they also get another year’s extension to start a low-income-housing project.
  • The government finances look decent, with a 3.4% fiscal deficit projected for both this year and the next. But much of this is about a hike in dividend payments from RBI (80,000 cr. from 50,000 cr.) and a much higher collection from GST and personal tax.

There are no major changes in taxation (other than the rebate, which is confusing, but it will effectively help only people who make less than Rs. 500,000 in taxable income). An increase in standard deduction to Rs. 50,000 (from 40,000) will help all salaried people. There’s

The big spending is largely in intererst (6.6 lakh crores), Defense (3 lakh cr), Subsidies (2.9 lakh cr) and Pensions (1.7 lakh cr.) There’s a big increase in agri spending, to 140,000 cr. from 86,000 cr.

Thats about half the budgeted spend of Rs. 27 lakh crore.

Overall, if India manages to reduce interest rates and costs, the deficit can be curtailed – and with low inflation, it might just be possible to cut rates. However, this budget has a populist element and we’ll have to wait to see the impact.

Yields of Government bonds have risen.

More on this soon, from the Capitalmind team.