The Union Budget for financial year 2019–20 (FY20) has used the
revised numbers for FY19 as the benchmark as against the accounts, which showed
a smaller size of almost Rs 1.5 trillion to almost retain the budgetary numbers
for the coming year with a marginal improvement in the fiscal deficit number to
3.3 per cent.
While the speech has focused on the main thrust areas, benefits
have been provided to specific sectors like affordable housing and electric
vehicles. It has kept most of the tax structures unchanged. Customs rates have
been selectively increased and petrol and diesel are to cost more as this is an
assured revenue stream for the government.
A major takeaway is the bank recapitalisation (bank recap) amount
of Rs 70,000 crore that has been announced. However, this would be through the
issuance of securities, which means that once again it will not be a part of
the budget but an offering through the recap bonds route. The cost of such an
exercise would be witnessed through the interest payments that have to be made
over a period of time. The infusion of such capital is welcome, as it will help
banks to lend especially so as six of the public sector banks (PSBs) have come
out of the prompt and corrective (PCA) framework and would require capital to
grow.
The semi guarantee being provided to PSBs for purchasing assets of
non-bank finance companies (NBFCs) is a very good step. It sends strong signals
that the government considers this sector to be important and that it is
willing to support it directly through the Budget. This should help the market,
which was getting jittery on account of lack of action here. This could be a
precursor to the Reserve Bank of India (RBI) also considering some other
windows for lending, which has been a demand from this industry.
The disinvestment scheme of Rs 1.05 trillion will probably be the
highest and will help the government balance the budget, if successful. It also
looks like the exchange traded funds (ETF) route will be preferred to drive
home the benefit and to this end they have linked this with the ELSS schemes
for investors to draw tax benefits.
The budget has been carefully drafted keeping in mind the
constraints of commitments made in the interim document in terms of expenditure
and the reality of growth trends. Hence, the borrowing programme of the
government remains unchanged and hence the market should take heart at this.
Also, in the absence of the RBI report on the use of reserves being out, there
was limited scope to use the money for further expenditure. Total capex is just
around Rs 20,000 more than that in FY19.
However, there is an upward revision in the GDP growth number to
12 per cent. While this could be assumed to manage the budget numbers, it could
also mean that with real growth expected to be no more than 7 per cent as per
the Survey, there could be higher inflation of above 4 per cent. In this
scenario, the talk of interest rates cuts should be reviewed, as the monsoon
progress so far has also been less than satisfactory.
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