While expectations of populism were largely prevalent, big-bang announcements like the PM Kisan Samman Nidhi and a rebate in income tax for an assessee with up to Rs 5 lakh of income came as a surprise.
By Vaibhav Sanghavi
Ahead of the Budget, market participants were debating whether it’s a Vote on Account or an Interim Budget or a full Budget. There was some sense of disinterest, given the Street wasn’t expecting anything major. However, this turned around quickly, as the finance minister began his speech. By the end, it was an eventful Budget with far-reaching implications.
It has been a judicious mix of populism and careful allocation of resources. While expectations of populism were largely prevalent, big-bang announcements like the PM Kisan Samman Nidhi and a rebate in income tax for an assessee with up to Rs 5 lakh of income came as a surprise. What it effectively does is puts money in the hands of people, which may boost consumption. With the measures announced, the Budget is likely to have a far-reaching and broad-based effect on farmers, the poor and the needy.
In terms of important macro numbers the markets watch closely, the data is mixed. On the positives, fiscal deficit is budgeted at 3.4% for FY20, which is comfortable, given there is an additional allocation for compensating farmers, under the PM Kisan scheme. The debt-to-GDP number is also comfortable at 48%. The total expenditure is based on the assumptions of overall growth in tax revenues at 14%, which again is reasonable. Revenue from non-tax sources is what will need some monitoring. Since resources are limited, there has been minor growth on capital expenditure. Also, the gross borrowing number is relatively high, which has led to a rise in 10-year benchmark rate. However, I do not expect inflation to rise meaningfully.
On the corporate side, while there wasn’t any major announcement, the measures taken to revive the real estate sector are heartening. Announcements on treatment of capital gains, house property tax and affordable housing incrementally lends support to the ailing sector.
What it means for markets? It is clear that the biggest beneficiary is the consumer sector (staples and discretionary). The Budget is likely to provide a material push to GDP, and higher borrowings may have some pressure temporarily on bond prices, which can affect financials. The Budget is indifferent to industrials, IT and pharma. I believe the Budget would be discounted very quickly, and markets would again start looking at global economies, where the action is.
The Budget has tried to address income inequality. I consider it as a very big and long-term positive. It is a fine balance of support, prudence and aspiration, though limited by the nature.