Insights

Budget 2019

Indian Economy & Policy | February 02
Budget 2019 :-
















Despite the fact that it was a vote on account / interim budget, there were a number of interesting initiatives which were announced.  Some of these, such as the tax relief for the middle class, augmenting agriculture sector incomes for small farmers, etc. will fuel consumption,  while others, like, modifying tax provisions related to house purchases and rent, raising thresholds of certain categories of income that attract TDS, etc. were pragmatic.  Most importantly, the budget seeks to achieve high growth while keeping the fiscal deficit and even inflation low.


Universal basic income which was being talked about for some time got finally implemented in a manner for small and marginal farmers.  While this may be the most significant development of this interim Budget, the compulsion for the Government facing a General Election in few months was clear.  At this stage, probably they had very little choice post implementation of Rythu Bandhu and Kalia schemes by Telangana and Orissa governments respectively.  In any case direct benefit transfer to affected small & marginal farmers is a much better way of handling farm sector distress compared to doling out farm loans waivers which completely distorts the culture and makes life even more difficult for the intended beneficiaries of such largesse i.e. small and marginal farmers.  The question of course remains regarding source of permanent funding for such direct benefit transfer schemes in a sustainable manner as these kinds of scheme once introduced will be extremely difficult to withdraw.  New Pension scheme launched for the unorganized sector employees, can also be included in the above category. While these are socially desirable steps, funding for such endeavors need to be secured on a permanent basis.


The benefits passed on to lower income group through relief in Income Tax and also benefit for real estate owners are welcome and required corrective measures which will surely provide much needed relief to the harassed small tax payers. Since only  around 1,00,000 taxpayers contribute 90% of Direct tax collection, in any case it is prudent to pass on these benefits to the vast tax base to make administration of Direct Tax simpler by focusing on a smaller and targeted universe.


Some tweaking of capital gains tax by providing relief through investment in residential properties and exemption from tax of unsold real estate inventory for two years are also welcome developments for this beleaguered real estate sector.


Over all the marginal slippage in fiscal target to 3.4 % against the original 3.3% should not have significant adverse impact on the financial markets and investor sentiments.  This fiscal deficit target also applies even for the next fiscal.  The encouraging trend of growth in GST revenues and further streamlining of Direct and Indirect Tax, may be in the forthcoming full Budget in June / July 2019, can address the issue of fiscal deficit and fiscal discipline in a more comprehensive manner.


Overall, it may be appropriate to conclude that this interim budget delivered in a calibrated manner what the urgent need of the hour was, both from the political and economic point of view particularly for the weaker sections of the society.

 

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