What to expect from the Union Budget 2019?

Union Budget 2019-20 will be special in quite a few ways. It will be the first budget presented by a non-finance minister Piyush Goyal, who is filling in for a sick Arun Jaitley. It will also be the first time we will have an interim budget instead of vote-on-account in an election year.

Above all, the budget is being presented in the midst of very challenging domestic and global cues. Globally, there is the US-China trade war, the Chinese economic slowdown, warnings from the IMF, and oil spikes. Domestically, there is rising inflation, currency, interest rates, and the IL&FS crisis.

Here is what we can expect from this year’s Budget.

A budget built around the farmer

If the NDA should have any chance of doubling farm incomes by 2022, this is their golden chance. MSP has had halting success and the government may now opt for direct cash transfers instead of paying subsidies. States like Telangana have adopted this method quite successfully. Cash transfer could cost the government Rs70,000cr but the impact will be visible. The budget could also witness the revival of full-fledged rural job creation and enhanced lending to the rural sector. Instead of loan waivers, this budget may make the first attempt at introducing Basic Guaranteed Income (BGI) in rural India. That could be a trump card.

Prefer pump priming over fiscal prudence

Fiscal deficit is under pressure on two fronts. The government has huge spending plans and the revenues are just not keeping up. GST collections are expected to fall short by Rs1,00,000cr in the current fiscal while divestment proceeds may fall short by Rs20,000cr. This will stretch the fiscal deficit from 3.3% to 3.5%. The budget could also see a clear shift in government stance. It may take a stand in favour of boosting the economy through fiscal measures even at the cost of higher fiscal deficit. That is what China has done and the budget may see merit in following that route.

Critical decisions on GST and disinvestment

Leaving decisions to the GST Council may work for micro issues but not for GST at a macro level. The government may look to hit two birds with one stone by bringing oil and oil products progressively under GST. This could be the real boost that GST was looking for. Also, the budget may look to simplify GST substantially and focus on the quality of filings.

The other big shift could disinvestment. Apart from setting targets, the budget may look at a new approach to disinvestments, i.e. a strategy that encompasses a holistic strategy for minority stake sale, strategic sale, monetization of tangibles, monetization of intangibles, consolidation, and SOTP valuations etc. This could be the exciting area.

Come elections, the common can rejoice in this budget

One way to keep the people happy through the budget is to give generous tax incentives to enhance disposable incomes. It is likely that the basic exemption slabs could be raised and the Section 80C limit could be expanded. Also, Section 24 may be made more relevant to boost property sales in booming Indian cities.

Equity markets may see reduction of cascading effect

IF LTCG tax collections are tepid, we could see the abolition of the LTCG tax on equities or, at least, witness the extension of indexation benefits to equity and equity funds. This will reduce the cascading effect.

Secondly, dividends are being taxed at almost four levels now (company level, DDT, equity investors, and MF investors). This cascading effect needs to be reduced to make it meaningful. STT is most likely to stay as it is.

The budget is likely to be predicated on leaving more money with people in an election year, doling out a farm rescue package, and making a noise on disinvestment and GST.