With the Lok Sabha elections just a couple of months away, the NDA government’s last Budget, which Prime Minister Narendra Modi described as a “trailer” of what will take India “towards prosperity”, targeted two critical voter segments: an estimated 12 crore farmer families and 3 crore middle-class taxpayers. It handed them more money that can spur consumption-led growth.
To address the growing disquiet over jobs, Union Finance Minister Piyush Goyal, in his debut Budget, announced a string of incentives not just for builders, but also home buyers, to boost demand in a sector that could be a force multiplier for the economy.
In the Interim Budget 2019-2020, Goyal set aside Rs 75,000 crore towards the Pradhan Mantri – Kisan Samman Nidhi (PM-KISAN), under which farmers holding upto 2 hectares will get Rs 6,000 as assured income support every year. “Around 12 crore small and marginal farmer families are expected to benefit from this,” Goyal said in his 100-plus minute speech that was unusually long for an interim Budget.
The income support will be spread over three instalments and the first one will be handed out by March 31, well before the Lok Sabha elections.
For the middle class, the Finance Minister offered full tax rebate up to a taxable income of Rs 5 lakh, potentially raising disposable income by Rs 10,000 a year.
“Even persons having gross income up to Rs 6.5 lakh may not be required to pay any income tax if they make investments in provident funds, specified savings, insurance, etc. In fact, with additional deductions such as interest on home loan up to Rs 2 lakh, interest on education loans, National Pension Scheme contributions, medical insurance, medical expenditure on senior citizens, etc, persons with even higher income will not have to pay any tax.” Goyal said.
The extra rebate will cost the exchequer Rs 18,500 crore. In addition, for the salaried, he increased standard deduction by 25 per cent to Rs 50,000 a year.
Goyal also announced a pension scheme for unorganised workers such as rickshaw pullers, street vendors, rag pickers, domestic workers, and construction, agriculture, handloom, leather sector and beedi workers. Called the Pradhan Mantri Shram Yogi Maandhan, the scheme would offer Rs 3,000 pension every month after the age of 60 upon a contribution ranging from Rs 55 (19 years) to Rs 100 (29 years and over) per month.
The government would make a matching contribution, for which Goyal has earmarked Rs 500 crore in 2019-20.
The government hopes at least 10 crore labourers and workers in the organised sector would be covered under this, making it the largest pension scheme in the world over the next five years.
Taken together, these three measures target more than half of the households across the country.
The stock market reacted positively as Goyal presented the Interim Budget, dipped subsequently, but ended the day with a 212-point gain on the Bombay Stock Exchange. The Sensex closed 0.59 per cent up at 36,469 points on Friday.
The government has missed its fiscal deficit target for the second year in a row. It is expected to end 2018-19 with a deficit of 3.4 per cent of GDP, against the budget estimate of 3.3 per cent of GDP. It ended the previous year with a deficit of 3.5 per cent of GDP, having budgeted it at 3.2 per cent of GDP.
In presenting its deficit target of 3.4 per cent for the next year, the government has assumed a nominal growth rate of about 11 per cent for 2019-20. Assuming inflation to remain at around 4 per cent, the real growth is estimated to be about 7 per cent, which is lower than the 7.2 per cent GDP growth rate for 2018-19 as per the first advance estimates.
The government has proposed a 13 per cent increase in the Budget size to Rs 27,84,200 crore. It expects tax receipts to increase by a modest 15 per cent against a 19 per cent jump in 2018-19. Having managed to meet its disinvestment targets for the year largely through share buybacks and cross-holdings between PSUs, it has estimated to raise Rs 90,000 crore in 2019-20.
The government’s focus on multiple aspects of the real estate or the construction sector were aimed at reviving housing demand, and helping growth. The Budget allowed for capital gains up to Rs 2 crore to be invested over two properties instead of one, raised the rent income limit at which TDS kicks in to Rs 2.4 lakh a year from Rs 1.8 lakh a year, extended the tax exemption benefit for developers by a year, and exempted the notional rent on second self-occupied homes.
At a press conference after the Budget, Goyal also indicated that the income tax slabs could be revisited when the government presents the full Budget after elections. “I had the constraint of this being an interim budget. However, there were many things which could not have waited for the final budget, particularly, relief for small taxpayer, which I had passed on. The rest is for the then finance minister to decide in July 2019,” he said.
Modi, in a televised statement after the Budget was presented in Parliament, said the announcements will empower the poor, give a boost to the farmer and an impetus to the economic growth. “Our neo-middle class is rising and so are their dreams … Interim budget a trailer for what will take India towards prosperity after Lok Sabha polls,” he said.
Modi said the PM-Kisan was a historic step for farmer welfare and the PM Shram Yogi Maandhan Yojana will be of great help for workers in the unorganised sector. “The budget will empower the poor, give a boost to the farmer and an impetus to the economic growth,” he said.