The provision of income transfer to 12 crore rural families for Rs 75,000 crore, along with MSP increase and MGNREGA allocation, will support rural consumption.
For the first time, an accounting professional (merit-ranked chartered accountant) presented a Budget, which balanced the needs of an election-bound government and an economy needing to grow at a faster pace for better inclusion. It is a Budget that boosts consumption through support to farmers and the rural economy by providing direct income transfer; middle class through tax rebates; and to entrepreneurs through ease of doing business. More importantly, the path of fiscal prudence is not missed while creating growth momentum for the economy.
The provision of income transfer to 12 crore rural families for Rs 75,000 crore, along with MSP increase and MGNREGA allocation, will support rural consumption. Lower middle classes will have higher disposable incomes through tax rebates and relaxation on capital gains tax provision with respect to property. Entrepreneurs will get supported by increased allocation of MUDRA loans and lesser hassles on the income-tax assessment and scrutiny side. The real estate sector gets a special attention, with tax-free profits for affordable housing getting one-year extension and tax on notional rent on unsold inventory being available for two years.
Expenditure growth is muted on capital side, as being a Vote on Account there was limited flexibility to enhance capital expenses. Tax revenue growth assumption in the revised estimate for the current year is a stiff target to achieve. The size of the borrowing programme is a little ahead of market expectations, but is manageable. The current year’s net borrowing programme is reduced due to increased mobilisation of small savings and is likely to continue in the next year. It will be important for the government to have a plan B ready with strategic divestment and asset monetisation to fund additional capital expenditures next year, if needed.
This Budget is a calculated call to boost growth through higher disposable surplus in the hands of consumers. While urban consumption and government spending on infrastructure is on the front foot, private investment in the last few years have been on the back foot. Boost to consumption can push demand higher, resulting in improved capacity utilisation, which can act as a catalyst for increased private investment.
The debt market, while taking comfort from the path of fiscal prudence, will keep a watch on RBI policy next week. It will be interesting to see if RBI chooses a rate cut to support lower yields. Equity markets will focus on Q4 business momentum and election results to chart out the next move.
-The author is MD, Kotak Asset Management