Union Budget India
Import Duty On Gold
Import duty on gold hiked from 10% to 12.5%
Excise Duty On Crude
Special additional excise duty on petrol & diesel of Rs.1 shall increase cost of petrol & diesel
Exemption Limit Raised On Interest On Affordable Housing Loans
Government has raised IT exemption limit on interest on housing loan to INR 3.5 lakh from INR 2 lakh for loans on houses valued up-to INR 45 Lakh. The additional exemption limit is only available on loans taken till 31.03.2020.
Disinvestment Target Increased
Government increases disinvestment targets to INR 1.05lakh cr. in final budget from INR 90,000 cr in the interim budget. Positive for bonds.
Credit Guarantee For Pooled Assets
Government announces one time 6 months credit grantee scheme to PSU banks for acquiring highly rated pooled assets of NBFC upto INR 1lakh cr. in the current financial year, wherein the government will bear first loss of upto 10% (INR 10,000 cr.)
Bank Recapitalisation
Government to infuse INR 70000 crore in order to recapitalize PSU banks
New Water Ministry
New Integrated water ministry created with "Har Ghar Jal" mission to be achieved by 2024.
Big Push For Rural Road Development
Government to upgrade 1.2 lakh kms of rural road with estimated cost of 80200 cr. under the pradhan mantri gram sadak yojna
Dedicated Freight Corridor (DFC)
Aggressive Push for dedicated freight corridor shall boost railway cargo movement
Fishing Policy
Announcement of Fishing policy for developing infrastructure for fishing industry in India
Affordable Housing Push
Government to build 1.95cr houses between Fy19-FY22 under the PMAY as compared to 1.5 cr houses build till date.
Focus On Gas Grids
Government to focus on building gas grids across the country in line with the power grids
Markets get boost with Union Budget
While Mrs. Sitharaman presents the Budget in the Parliament today, Markets started on a positive note.
Nirmala Sitharaman to present the Union Budget 2019
After Late. Indira Gandhi, Mrs. Sitharaman is the First Women Financial Minister presenting the Budget in the Parliament.
CHANGES IN DIRECT TAX
Rate on taxable income upto Rs. 5 lakh reduced to 0% from 5%.
CHANGES IN DIRECT TAX
Standard deduction limit raised to INR 50000 from INR 40000.
EXEMPTION ON NOTIONAL INCOME FROM RENT
Notional rent Income from second Self occupied home to be exempted.
80IB TAX BENEFIT`
80IB Tax Benefit extended
FY20 FISCAL DEFICIT
Fiscal deficit unchanged at 3.4% for FY20E
RAILWAYS BUDGET
Budgetary support for railways increased to INR 64587 cr. in FY20 INR from INR 53060 cr. in FY19
DEFENCE ALLOCATION
Increased allocation upto 3lk cr and if required additional fund will be allocated
FREE LPG CONNECTIONS
8 Cr Free LPG Connections under Ujjwala Scheme
UNIVERSAL PENSION SCHEME
Pradhan mantri shram yogi mandhan to provide assured monthly pension of Rs. 3000 post retirement at age of 60. Monthly contribution of Rs. 100 per month for anyone joining at the age of 29 years. Govt to provide matching contribution.
RASHTRIYA GOKUL MISSION
Budget allocation of 7,500cr for Rashtriya Gokul Mission
INCREASE IN FARMER INCOME
Farmer income to double FY2022 will benefit all tractor companies
ELECTRICITY FOR ALL
Electricity for all by March 2019
FARM INCOME SUPPORT
Govt announces PM Kissan Saman scheme. Total Outlay of INR 75000 cr. To benefit small & marginal farmers with holdings upto 2 hecters of land. Govt to transfer INR 6000 cr. per annum in 3 installments directly to farmers.
FARM INCOME SUPPORT
Government allocates INR 20,000 Cr. for PM Kissan Saman Nidhi in FY19 itself.
ANIMAL HUSBANDRY & FISHERIES
2% subvention scheme for animal husbandry & fisheries
NEEM COATED UREA
Allocation for Neem coated Urea increased
FISCAL DEFICIT
Fiscal Deficit in 2019RE at 3.4% against market expectations of 3.5%.
CURRENT ACCOUNT DEFICIT
In line with market expectations of 2.5% of GDP.
MNREGA ALLOCATION
MNREGA allocation at Rs. 60000cr for FY19-20
PRADHAN MANTRI GRAM SADAK YOJANA
Pradhan Mantri Gram Sadak Yojana allocated 19,000 cr for FY 2019-20
INCREASE IN FARMER INCOME
Farmer income to double by 2022
Interim Budget 2019-20 Review
Fiscal Slippage a much needed fiscal stimulus
As expected, this interim Budget turned out to be much more than expected. There was a fiscal slippage in FY19 to 3.4% against budgeted estimates of 3.3%, though it was less than market estimates of 3.5%. However, fiscal deficit for FY2020 at 3.4% was ahead of market estimates and significantly ahead of 3.1% as mandated by the FRBM Act.
We believe that tight fiscal and monetary policy over the past few years coupled with major structural changes have taken a toll on growth and the dynamics are not conducive for an inflationary environment. On the contrary, we believe that slippage of 30bps for FY20 (in relation to FRBM mandated rate) was a much needed fiscal stimulus and would actually go a long way in addressing the current rural distress and stimulating growth without stoking inflation.
Budget was focused on addressing agri distress
The interim Budget was rural focused, which was on the expected lines, given the recent loss by the incumbent government in some of the key states like Rajasthan, Madhya Pradesh and Chhattisgarh. One of the primary reasons for the losses in the assembly elections was anger against the incumbent government for failing to address agri distress effectively
For the first time an income support scheme was introduced as conventional measures like MSP hikes and farm loan waivers have proved to be ineffective against addressing agri distress. Under the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) scheme, the government will transfer `6,000 per year to small & marginal farmers in three equal installments. The government has already allocated `20,000cr to the scheme for FY2019, while the budgeted outlay for the scheme is `75,000cr for FY2020.
This is over and above other subsidies like fertilizer and food wherein budget outlays have also increased for FY2020. The PM-KISAN scheme along with increased outlay in other schemes should address the issue of agri distress to some extent in FY2020 and we believe that the outlay for the scheme would increase and may subsume other schemes going forward.
Buoyancy in tax collections is heartening
The government was able to achieve fiscal deficit target of 3.4% in FY2019 without resorting to any major off balance sheet spending like that in FY2018.
Gross tax revenues grew by 17.2% against nominal GDP growth of 10.5%, which translates to tax buoyancy of 1.64x and is pegged at 1.23x for FY2020. We believe that with most GST related issues and rate cuts behind, government would be able to meet fiscal targets for FY2020 even if GDP growth is slower than budgeted 11% or there is some shortfall in disinvestments targets.
Given that inflation is expected to remain well below RBI’s mid range of 4% in FY2020, there is a real likelihood of nominal GDP growth coming in below expected growth rate of 11%. The farm package along with marginal changes in personal tax would provide a much needed fiscal stimulus in the backdrop of slowing nominal GDP growth.
Budget Report 2019
Interim Budget 2019
The interim budget is a report card on the income and expenses made last year and the proposed expenses likely to be made in the next few months until the new government takes over. An interim budget is presented by outgoing govt.
Normally, any government only presents five full fledged Union Budgets. That is because in the 6th year, the elections would be due and hence it would be futile for a government to present a full year budget that it cannot implement. Hence, the normal practice over the years has been to present an interim budget which is presented as a vote on account. The idea of a vote-on-account is to have a consensus approval for certain routine expenses to keep the government up and running. This is meant to take care of expenses only till the general elections are held and a new government is in place.
Deciphering the difference between interim budget and vote-on-account
As we explained above, the interim budget is presented with a view to have a vote-on- account for certain necessary government expenditure. In effect, the interim budget and the vote-on-account are one and the same. The tacit agreement is that the full budget cannot be presented as no government has presented the 6 th full budget in the absence of political clarity ahead of the elections. However, what the NDA government might attempt to do in the current year is to create the interim budget as a go-between a full budget and a traditional vote-on-account. For example, the Interim Budget may not contain too many drastic changes in the Finance Bill pertaining to direct and indirect taxes since implementation could become a challenge. However, the interim budget can be used to push through some pressing reforms on the agricultural front, alleviation of rural distress, infrastructure commitment etc. Essentially, the interim budget this year is likely to be used as a compromise document which will include some additional allocations that are likely to have a broad consensus from al l the parties irrespective of affiliations.
What is the exact need and role of an interim budget?
For the year 2019, the NDA government has already confirmed that the budget will be an interim budget, but it is more likely to be positioned somewhere between a vote-on- account and a full-fledged budget. What purpose will this budget serve?
- It will be used to highlight the key achievements of the previous financial year in terms of revenues and the outcome budget on allocations. This can be a very important leverage for governments as they go into elections.
- The government can also use the interim budget to highlight the performance of the fiscal deficit with the reasons for the same. For example, a higher fiscal deficit that is used to pump prime the economy could be good news for the economy and the markets. At the same time, controlled fiscal deficit with stagnating growth is not a great confidence builder. The interim budget can be used to strike that balance.
- One of the reasons for not presenting a full-fledged budget is that governments may be inclined to use that as pre-election rhetoric. Generous amounts of loan waivers, rural spending, farm pricing etc can be used by the ruling parties as an election carrot. Quite often, if the government is not voted back to power then they can be held accountable for it. That is where the problem of rhetoric becomes slightly misleading.
An interim budget is normally seen as a stop gap measure. The idea is to ensure that the wheels of government are moving without giving any one party an inordinate advantage in the elections.
Difference between Interim Budget and Union Budget
Interim budgets, as the name suggest, have been a stop gap arrangement to ensure that funds are made available to run the government in the interim period till a new government is elected. The number of interim budgets in the past depended on the timing of the government formation. Out of the total 11 interim budgets that have been announced till date post independence, five have pertained to the temporary period before the elections while six were presented in the temporary period after the elections.
Highlights of a typical interim budget
- Most interim budgets have restricted to doing a review of the financials of the previous years and these interim budgets have typically avoided any drastic reforms on the economic front.
- The main intent of the interim budget is to get the Vote on Account approved to ensure that the regular expenses of the government can be met.
- Interim budget typically avoids making major changes to the Finance Bill as changes to direct taxes entail a detailed discussion and also the government may not be able to fulfil the promises if it does not continue in power
If you look at interim budgets in the past, there have been some common factors running through these interim budgets.
Looking back at the interim budgets over the years
- The convention of presented an interim budget was first started by India’s first finance minister, Shanmukham Chetty. He presented an interim budget for the intervening period before presenting the final budget in 1948, which also marked independent India’s first full-fledged budget.
- Dr. Pranab Mukherjee who presented 2 interim budgets in independent India laid the ground rules for the presentation of interim budgets. Dr. Mukherjee opined that since the election marked the presentation by an outgoing government, democratic principles called for letting the new government frame the broad budget policy for the year.
- Dr. R Venkataraman, who along with Pranab Mukherjee had the distinction of presenting 2 interim budgets, underlined the difference between a government in power and a government going into elections. Accordingly, an outgoing government should have less power to announce reforms in an interim budget compared to a new finance minister who is just using the interim budget to bridge the time gap.
- Mr. Yashwant Sinha had the dubious distinction of presenting an interim budget that actually could not go through in toto. This was during the brief Chandra Sekhar regime when Yashwant Sinha became the finance minister for the first time. Since the Congress, which had backed Chandra Sekhar, had refused to approve a full budget, Sinha was forced to announce an interim budget. Sinha could never present the full budget as the government fell before that.
- Sinha also presented an interim budget for the second time in 1998 when Vajpayee managed to form the government with outside support. Sinha had presented a vote on account ahead of the full budget. It may be recollected that this was the period that was marked by a slowdown after the second nuclear test led to sanctions in May 1998.
- Ironically, Pranab Mukherjee, also made a departure from the practice by allowing leeway in fiscal deficit in his interim budget in 2008-09. To fund the welfare expenses, Mukherjee allowed the fiscal deficit to deviate from the FRBI targets. This period marked the announcement of the Rs.40,000 crore farm rescue package and also the fiscal deficit spilling gradually from 2.5% to above 6%.
- P Chidambaram, perhaps, hit the nail on the head when he announced the interim budget in 2014. While he stuck to keeping status quo on direct taxes, his focus on reducing excise duties and other macro reforms continued even in the interim budget. We see that as the model that the incumbent government may also adopt in the interim budget 2019.
The concept of interim budgets and the restrictions around them are largely self-imposed. Finance ministers in the past have tried to adhere to some practices pertaining to an interim budget and these practices have stayed.
Interim Budget definition and history highlights
Interim budgets, as the name suggest, have been a stop gap arrangement to ensure that funds are made available to run the government in the interim period till a new government is elected. The number of interim budgets in the past depended on the timing of the government formation. Out of the total 11 interim budgets that have been announced till date post independence, five have pertained to the temporary period before the elections while six were presented in the temporary period after the elections.
Highlights of a typical interim budget
- Most interim budgets have restricted to doing a review of the financials of the previous years and these interim budgets have typically avoided any drastic reforms on the economic front.
- The main intent of the interim budget is to get the Vote on Account approved to ensure that the regular expenses of the government can be met.
- Interim budget typically avoids making major changes to the Finance Bill as changes to direct taxes entail a detailed discussion and also the government may not be able to fulfil the promises if it does not continue in power
If you look at interim budgets in the past, there have been some common factors running through these interim budgets.
Looking back at the interim budgets over the years
- The convention of presented an interim budget was first started by India’s first finance minister, Shanmukham Chetty. He presented an interim budget for the intervening period before presenting the final budget in 1948, which also marked independent India’s first full-fledged budget.
- Dr. Pranab Mukherjee who presented 2 interim budgets in independent India laid the ground rules for the presentation of interim budgets. Dr. Mukherjee opined that since the election marked the presentation by an outgoing government, democratic principles called for letting the new government frame the broad budget policy for the year.
- Dr. R Venkataraman, who along with Pranab Mukherjee had the distinction of presenting 2 interim budgets, underlined the difference between a government in power and a government going into elections. Accordingly, an outgoing government should have less power to announce reforms in an interim budget compared to a new finance minister who is just using the interim budget to bridge the time gap.
- Mr. Yashwant Sinha had the dubious distinction of presenting an interim budget that actually could not go through in toto. This was during the brief Chandra Sekhar regime when Yashwant Sinha became the finance minister for the first time. Since the Congress, which had backed Chandra Sekhar, had refused to approve a full budget, Sinha was forced to announce an interim budget. Sinha could never present the full budget as the government fell before that.
- Sinha also presented an interim budget for the second time in 1998 when Vajpayee managed to form the government with outside support. Sinha had presented a vote on account ahead of the full budget. It may be recollected that this was the period that was marked by a slowdown after the second nuclear test led to sanctions in May 1998.
- Ironically, Pranab Mukherjee, also made a departure from the practice by allowing leeway in fiscal deficit in his interim budget in 2008-09. To fund the welfare expenses, Mukherjee allowed the fiscal deficit to deviate from the FRBI targets. This period marked the announcement of the Rs.40,000 crore farm rescue package and also the fiscal deficit spilling gradually from 2.5% to above 6%.
- P Chidambaram, perhaps, hit the nail on the head when he announced the interim budget in 2014. While he stuck to keeping status quo on direct taxes, his focus on reducing excise duties and other macro reforms continued even in the interim budget. We see that as the model that the incumbent government may also adopt in the interim budget 2019.
The concept of interim budgets and the restrictions around them are largely self-imposed. Finance ministers in the past have tried to adhere to some practices pertaining to an interim budget and these practices have stayed.
What is meant by the Indian Union Budget?
The Union Budget announcement has been a major event for a very long time. The late Nani Palkhivala famously remarked that “India is the only country where the Union Budget is an event”. Not just the industry leaders, CEOs and CFOs, but even market analysts, traders and investors track the Union Budget very closely. So, what exactly is meant by India’s Union Budget?
Union Budget is like an annual report of the economy
The closest analogy that you can look at is to equate the Union Budget with the annual report presented by a company. Just as the annual report reviews the performance of the previous financial year and gives you guidance of the next year, the Union Budget is also a broad policy cum strategy paper. The Union Budget considers the period from April 01 st to March 31 st and is also known as the financial year. The budget is, perhaps, the most extensive and authentic account of the government finances. The revenues and expenditures under all heads are enumerated and these heads of revenues and expenses are further classified into sub-categories like revenue versus capital; budget versus non- budget; plan versus non-plan etc. Apart from a review of the revenue and capital side of the national balance sheet of the previous year, the Union Budget also contains the detailed estimates for the next financial year. In the past, the Union Budget was presented in the afternoon on the last working day of February. However, effective the Budget 2017, the Union Budget is being presented on February 01 st .
Key sections of the Union Budget presented by the Finance Minister
The Union Budget is presented each year by the finance minister. Since the NDA assumed power in 2014, Arun Jaitley has been presenting the budget each year. Some of the key components of the Union Budget document are as under:
- The budget begins with the Annual Financial Statement (AFS). The AFS shows the estimated receipts and expenditure of the government for the coming fiscal year. For example, the Budget presented on Feb 01, 2018 will present estimates for the financial year 2018-19. The AFS distinguishes the expenditure in the revenue account from the capital account.
- Broadly, there are 3 accounts that you need to be familiar in the budget document. The most important is the Consolidated Fund of India (CFI), which constitutes of all revenues of the central government including revenue receipts, capital receipts, borrowings and recoveries. Then there is the Contingency Fund of India which is kept at the disposal of the President of India and is meant for any unforeseen emergencies. Finally, there is the Public Account, which holds all trust funds including provident fund collections, small savings, road fund etc.
- Another important part of the budget is the “Demand for Grants”. Here any debits or withdrawals from the Consolidated Fund of India (as explained above) are presented to the Lok Sabha and also explained in detail. Generally, the Demand for Grants is presented Ministry-wise for greater political clarity.
- From an investor point of view, the most important part of the Union Budget is the Finance Bill, which contains all the key changes in taxation pertaining to direct and indirect taxes. This segment has major implications for investors, corporates and stock markets. The Union Budget also provides a separate memorandum explaining the various direct tax provisions in the Finance Bill.
- Then we come to the statements that are mandated by the Fiscal Responsibility and Budget Management (FRBM) Act. Here, the FRBM targets for fiscal deficit are discussed; the previous year spillages are analyzed and the projections for the next year are done and presented to the house.
- The next is the detailed discussion on the Expenditure Budget. In this expenditure budget, the allocations made for various schemes and programs are accumulated and presented to the house on a net basis. The expenditure budget also breaks up the outflows into revenue expenditure and capital expenditure so that appropriate revenue sources can be pegged to the same.
- The Receipts Budget analyzes the import revenue aspects of the AFS with a detailed explanation and statistical analysis. Here the estimates of receipts like direct tax, indirect tax, disinvestments etc are budget in granular detail and the requisite justifications are provided. Here again, the receipts are broken up into revenue and capital and also whether such flows are of an equity nature or in the nature of debt.
- Finally, there is the outcome budget that has become a practice from the fiscal year 2007-08 onwards. The outcome budget is prepared by each ministry separately but is presented in the budget in a consolidated manner. The outcome budget draws out the actually deliverables vis-à-vis the estimates, both in terms of targets and financial implications.
Apart from all these aspects of the Union Budget, there is also something called the “Budget at a Glance” which covers all highlights in a nutshell. The summation of all these segments is what actually constitutes the Union Budget of India.
What are the different types of Union Budget?
This is the Union Budget document that we all get to see when it is presented by the Finance Minister in Parliament. The General Budget has 3 basic purposes. Firstly, it is supposed to inform the people through the Parliament how the funds received by the government are being utilized. Secondly, it is used as a statement of purpose to give a signal to the investors, corporates and to market overall. For example, Budgets of 1991 and 1997 had a clear reformist angle. Budget 2016 had a clear fiscal responsibility angle while Budget 2018 was all about the farmer. Thirdly, Budgets are also used by the government to exercise control over the various ministries and departments by benchmarking their performance against the targets set.
Evaluating performance through an Outcome Budget
One type of budget that has become popular in the last few years is the Outcome Budget or the Performance Budget. The US was a pioneer in making these performance budgets which focused more on outcomes and progress rather than on mere outlays and allocations. In fact, the outcome budget marked a shift in budget thinking as the focus shifted more in tune with economies becoming increasingly capitalistic in nature. For example, when allocations are made in the General budget for poverty alleviation, then the Outcome Budget focuses purely on how well the targets were achieved quantitatively and qualitatively.
Receipts and Expenditure Budget for greater granularity
You may argue that this is almost like the General Budget, but there is a process flow that needs to be understood. For example, the Expenditure Budget and the Receipts Budget are made independently based on feedback from various ministries and departments. The problem with making them together is that there is an inclination to make one contingent on the other. The expenditure budget and the receipts budget are prepared separately and then the General Budget consolidates them and takes a call on bridging the resource gap if any. In the Expenditure Budget and the Receipts Budget, the items are further sub divided into revenue and capital so that the allocations can be made in such a manner as to avoid any mismatch between the natures of flows. Normally, when there is a revenue deficit and has to be bridged by borrowings, that is when it becomes a concern for the economy. That is because revenue deficit is tantamount to borrowing for your morning breakfast.
Start from scratch with Zero Based Budgeting
What do we understand by Zero based budgeting. To understand zero-based budgeting, one needs to understand the way budgeting is normally done by countries today. The current system that we follow in India is called incremental budgeting. In this method, each year, the budgets are increased by a certain percentage that is agreed upon based on priorities. This is the most popular method. However, the incremental budget method cannot work in case the country is constantly making revenue deficits or is having structural problems that may require a new 360 degree approach. Zero-based budgeting does not use the previous year as the base but instead starts from scratch and makes the estimates each year based on the imperatives rather than benchmarking to last year. In India this method is used for specific components of the overall budget where a disruptive approach to budgeting is required. It has been observed that complete shift to zero based budgeting does not add value commensurate with the effort, but it works very well in specific pockets.
Gender Budgeting for targeting specific vulnerable groups
In gender budget, the overall budget contains a sub-component which focuses purely on the impact of budget announcements on women and children. The Gender Budget is more of a specific vulnerable group budget. Here there are specific allocations to these vulnerable groups and the outcomes are measured on very tangible benchmarks. We can also fine tune this budget to make it specifically relevant for other vulnerable groups like senior citizens, super senior citizens, backward classes, tribes, below poverty line (BPL) etc.
The various types of budgets are actually sub-components of the overall budget. Some of these techniques have really evolved in the last few years to give a more meaningful picture of your budget.
Highlights of Union Budget 2018 and 2017
Over the last two budgets, the government has tried to make a clear statement on the reforms process as well as on its commitment to the wider gamut of development as such. The budgets of 2017 and 2018 become critical because the previous budget of 2016 was the first time that the government had opted for the discipline of fiscal responsibility despite the pressures to spend more. Let us now look at some of the key highlights of the previous two union budgets of 2017 and 2018. Remember, both these budgets were broadly reformist in nature and both were announced on February 01 st instead of February 28th.
Key highlights of the Union Budget 2017
- This was the first budget presented after the demonetization exercise undertaken on November 08 th 2016. Hence it spends considerable time explaining the merits of the demonetization process and also assured that the outcome will not last beyond a year.
- There was also a huge rural flavour to the budget with an allocation of Rs.10 trillion for farm loans with a 60 day interest waiver facility.
- The Budget for the first time gave a big thrust to low cost housing by promising to promote home ownership for over 1 crore households.
- Budget 2017 launched the Skill India Mission with the intent of equipping less privileged sections of society with skills to upgrade themselves and also to make them employment ready.
- A big allocation of Rs.39.61 trillion was made for infrastructure with focus on high quality railways and roadways. This was the first budget to make railway safety and security a primary focus of the Union Budget allocation.
- This budget also spoke about the crude reserves policy for the first time with a view to ensuring energy security for India. The trade infra export scheme was also launched as part of this union budget.
- The budget also gave a push to freeing up the FDI policy with more than 90% of all FDI flows through the automatic route only. The Foreign Investment Promotion Board (FIPB) had also consequently been abolished.
- For the first time, the fiscal deficit was allowed to spill over beyond the FRBM targets in the interests of pump priming the economy. The fiscal deficit was pegged at 3.2% of GDP with a promise to get back to the 3% mark by the next year.
- The government proposed to reduce the tax rate for MSMEs with turnover below Rs.50 crore to 25% rate per annum. A total of 67 lakh companies fell in this bracket.
- On the personal income tax front, the budget also turned out to have some Robin Hood features with basic tax rate at the lowest run reduced from 10% to 5%. However, the government also imposed 10% surcharge on incomes above Rs.50 lakhs and 15% surcharge on incomes above Rs.1 crore.
Key Highlights of the Union Budget 2018
- The big announcement in the Union Budget 2018 was addressed at farm stress. The government, for the first time, promised an explicit assurance on minimum support price (MSP) by assuring 150% of cost of production as the assured MSP. This was later extended to Rabi crops too.
- A flat and blanket standard deduction was permitted at Rs.40,000 but in lieu of standard deduction, the erstwhile medical allowance and transport allowance were abolished. The benefit of standard deduction was also extended to pensioners.
- The exemption from interest income was increased to Rs.50,000 per annum for senior citizens as against the original level of Rs.10,000. Also no TDS was to be deducted for senior citizens till this level and hence administrative burdens were also spared.
- In one of the most ambitious plans to reach utility services to the poor, the government announced 8 crore free gas connections to poor women under the Ujjwala scheme. In addition, the budget also envisaged free power connections to 4 crore homes.
- One of the welfare highlights of the budget was the ambitious launch of the flagship National Health Protection Scheme to provide health cover at Rs.5 lakh per family to all rural and semi urban families.
- After a stellar divestment performance in the year 2017-18, the government announced an aggressive divestment target of Rs.80,000 crore for the fiscal year 2018-19.
Union Budget Highlights
Over the years, Union Budgets have not only been a quick evaluation of the year gone by but also a reference point for the next financial year. Here we take a retrospective of some of the key budgets in history and how then influenced the evolution of budgets over the years.
A retrospective of key budget announcements over the years
- The first budget after the creation of the Indian Republic was presented by John Mathai in February. This budget was known for setting the base for the formation of the Planning Commission.
- Budget 1968 was presented by Morarji Desai, who was also previously the chief minister of Maharashtra and later the prime minister of India. In a landmark shift, Budget 1968 announced that excise inspectors will not stamp and assess goods at factory gates any longer. Instead, the budget made a shift to self-assessment by manufacturers, which became the acceptable model for excise duty and later for GST too.
- 1986 marked V P Singh’s new generation budget which ushered in the idea of 21 st century and computerization for the first time. In fact, V P Singh pioneered the concept of value-added tax (MODVAT), which became the basis for manufacturers getting input credit. This was instrumental in reducing the cascading effect of excise duty and remains the guiding principle of GST too.
- Dr. Manmohan Singh ushered in unprecedented reforms in the 1991 budget. In a sweep, the license raj was dismantled, customs and excise rates were cut to competitive levels and foreign investments in the form of FDI and FII flows were welcomed. Economic Reforms actually got its first major boost in this budget presented by Dr. Singh.
- The 1994 Union Budget introduced Service Tax at the rate of 5% for the first time, which was later progressively increased to 15% and finally subsumed into GST in 2017 at the rate of 18%. Service tax collections enabled the government to further reduce the rates of excise and customs giving a boost to manufacturing sector.
- Budget 1997 was also christened the Dream Budget but more importantly it represented the ability of a government to present a reformist budget even in a coalition government. The budget was an eclectic mix. It introduced VDIS, which collected Rs10,000 cr. The budget also cut income tax rates and corporate tax rates to improve compliance in a big way.
- Budget 2000 presented by Mr. Yashwant Sinha was a growing up budget for the Indian IT industry. Despite the IT meltdown globally, the finance minister announced the phasing out of perpetual tax incentives. It was painful but set the stage for creating billion dollar software behemoths in India. Market caps have grown manifold since.
- In the 2003 budget, it was part of Vajpayee’s dream to give a push to infrastructure that was implemented. A massive allocation of Rs.75,000 cr was made for the Golden Quadrilateral project to connect India with high quality national highways. In a way, this was the beginning of the India growth story.
- A lot of investors found Budget 2004 quite scary due to the imposition of securitization transaction tax (STT). But the scrapping of capital gains tax gave a big boost to capital markets even as STT made markets more transparent. Indian capital markets saw unprecedented volumes post the introduction of STT.
- Union Budget 2007 was reformist and also punitive at the same time. It raised the income tax exemption limits in order to put more investable funds in the hands of people. But the rate of dividend distribution tax (DDT) was also hiked from 12.5% to 15% and has discouraged dividends since then.
- After a series of fairly forgettable budgets in between, the 2016 budget imposed additional dividend tax of 10% on annual dividends beyond Rs. 1 million in the hands of shareholders. Since DDT also continued, this became a kind of cascading taxation. This set the tone for major cash rich companies to opt for buybacks over dividends.
- Union Budget came as a boon to the rural sector but it created some jitters for the capital markets at large. Budget 2018 introduced flat (without indexation) 10% LTCG tax on equities and equity mutual funds above Rs1 lakh per annum. This was a consolidated limit and there was no benefit of indexation. The budget also extended 10% DDT to dividends declared by equity funds. But there were also some positives in the form of an attempt to double farm incomes by 2022 by setting the minimum selling price (MSP) at 150% of the cost of producing Kharif crops. The benefit was later extended to Rabi crops too.
The tone for the 2019 budget acquires importance considering that it comes just a few months ahead of the General Elections and in the midst of a fairly challenging domestic and international economic scenario.
Any given/above recommendations are back by Angel One's Research Team. The recommendations should not be construed as investment or financial advice. Each recipient should make an independent investigation as they seem necessary to arrive at evaluation on investment in securities referred above.
