By Rupen Jhaveri
Against the backdrop of the current economic environment, the Interim Budget lends credible impetus to the economy’s two big mainstays: farmers and the middle class. This will potentially lead to higher household savings, thereby setting the stage for consumption-led growth in the months to come.
Ahead of the elections and conversations around farm distress, a special package for farmers was largely expected. The government also announced a 5% interest rate subvention on timely repayment of farm loans. Over and beyond its widely targeted approach, the Budget stands out in its attempt of striking equilibrium between the immediate needs of the middle-income class and the agenda of driving large-scale rural reforms. This is evident in the suite of initiatives to alleviate farmers’ distress, complete tax rebate on an annual income of Rs 5 lakh and below, hike in TDS exemption limit from Rs 10,000 to Rs 40,000 on post office savings, to name a few.
A notable highlight is the focus on reducing taxation on MSMEs. The Budget has a sharply-defined focus on empowering the MSME sector, with faster turnaround times for loan approvals and a 2% interest subvention for loans up to Rs 1 crore.
The government continues to have a significant thrust on the rural economy, infrastructure and affordable housing. These factors will continue to drive domestic demand, and have a multiplier effect on employment, construction equipment, taxation and revenues.
The affordable housing sector will benefit tremendously in wake of sops announced with regards to exemption of TDS on house rent of up to Rs 2.4 lakh a year, exemption of tax on notional rent of second self-occupied home, and capital gains available on two house properties. Also, notional rent-free period on ready inventory having been increased to two years and greater incentivisation to MSMEs will render the industry poised for growth.
India attracted good FDI in the previous year. This, along with the government’s focus on debt consolidation and fiscal consolidation, sets the stage for a strong economic outlook. Fiscal deficit for the next year is projected to be 3.4%, assuming 15% hike in direct taxes and 13% rise in indirect taxes. These numbers look a bit ambitious given the current trajectory of economic growth. The cumulative effect of cash transfer to farmers and the middle-income class will be a boost to consumption.
Overall, it’s a credible Budget; it takes a practical approach that is notable, against the backdrop of elections and low inflation. The government focused on better tax collection. The rebates will potentially bring about a structural change in consumption, thereby driving growth.