Union Budget 2019 Expectations Running High
On 5th July, 2019 Finance Minister Nirmala Sitharaman will be presenting her maiden Union Budget. With the current economic slowdown in the country, this budget would be critically important for the newly-elected government which is still fresh from a landslide victory in the General Elections. Interim Budget 2019 was a welcome budget for the individual taxpayer and for the housing sector and it will be interesting to see the government’s focus areas/sectors in the upcoming budget.
Union Budget 2019 Expectations For Individual Taxpayers
The common man is always the central figure of any budget. One of the biggest challenges of the government through this budget would be put more money in the hands of the average Indian consumer. The country, being in dire need of private investments and asset creation, needs the consumers to have more money to spend. In continuation with the tax cuts announced in the interim budget, the government is expected to put forth more tax relief to encourage more spending and boost consumption.
Firstly, the expectations are that the Finance Minister may raise the tax exemption limit for individuals to INR 3 lakh of their annual income, up from the current INR 2.5 lakh to put more money in the hands of the individual taxpayer. Section 80C of the Income Tax Act, which states the tax exemption limit for savings and investments, sits at INR 1.5 lakh, is expected to receive an increase to further boost consumer spending. With the economy in turmoil, the government has to find ways to turn around consumer spending.
Union Budget 2019 Expectations: Banking And Real Estate
The real estate sector will be high in the government’s priority list for this Budget following the NBFC crisis, which was initially triggered by the IL&FS fiasco. The housing sector is an important contributor to the nation’s GDP and several steps would be required to get the real estate sector out of the deepening crisis.
Mission ‘Housing for All’ by 2022 is testimony to the ambitious plan to provide affordable housing to each and every citizen of the country. In this regard, the government has taken several measures to address the housing needs of millions through movements like Real Estate (Regulation and Development) Act (RERA) and cuts in GST rates for property.
In the upcoming budget, the government is expected to take more development-friendly initiatives for the betterment of the market sentiment. The revival of the real estate sector will be aligned with the tax incentives provided to the common man and thus enabling him to have the purchasing power to buy houses.
Given the dismal shadow cast on the NBFC sector in the past year, a lot of hope resides on this budget since NBFCs directly impact credit in the real estate sector. We are expecting significant measures towards incentivization, sustainability and consolidation, which will give some impetus to much required spending in the domestic economy.
In this budget, the government needs to lay the foundation for co-operation between banks and NBFCs to ensure smooth credit being given to NBFCs and subsequently, other sectors connected to it.
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Revival in Capital Expenditure: Infrastructure And Manufacturing Sector
As a precursor to the general elections, many GST benefits and other incentives had already been provided to these industries in the past 1-1.5 years. Definitely, to spur investments and more growth, the benefits already provided are expected to continue but infrastructure and manufacturing may not receive any more major benefits.
Despite increased capital expenditure by the NDA Government over the past 5 years to facilitate revenue generation through asset creation, the plan has not borne fruition. A revival in private investment is a necessary condition for the Indian economy to achieve high and sustainable growth. But here’s the bad news: data from the Centre for Monitoring the Indian Economy (CMIE) shows project announcements falling to unprecedented lows in the June quarter.
New project announcements totaled just Rs 43,450 crore in the June 2019 quarter, shows the data. That’s a fall of 87% from a year ago and an 80% dip from the March 2019 quarter.
The government does not have the fiscal space to push up capital spending (its capital expenditure in the first two months of this fiscal fell one-quarter over a year ago) while the private sector is jittery especially since consumption demand is also slowing. However, for reviving economic growth and creating much needed jobs, private investment is the key way forward. As the Economic Survey 2017-18 puts it, deeper an investment slowdown, the slower and shallower the recovery. Therefore, the budget needs to ensure the right balance between the increasing fiscal deficit and private investments.
Union Budget 2019 Expectations: Automotive Industry
The automotive sector, just like real estate, has been adversely affected by the NBFC crisis. The automotive industry has taken a huge hit in recent years, with India’s car sales declining 15.9% in April 2019, the worst in eight years. In the upcoming budget, the electric vehicle industry is expected to receive financial boosts from the government. The EV industry is already enjoying significant tax cuts and will expectedly, will continue to do so via this budget.
The incentives would be aligned with the government’s plans to sell only electric cars by 2030. Foreign companies like Kia and MG (Morris Garages), which are being given incentives to operate in India are testimony to the government’s intention to encourage foreign market players to enter the Indian market.
The government’s push to spread EV in India will serve the dual benefits of not only improving ease of doing business in India but also living in India, considering the alarming environmental concerns. Furthermore, the promotion of EVs in India will help revive the automotive industry holistically.
Importantly, EVs may play a vital role in managing India’s current trade deficit, with oil being a huge piece of the puzzle. India is primarily an importing country and our India’s increasing usage of oil for industrial and domestic applications has led to huge expenditures on importing oil.
We can help revive the economy and the environment by shifting from ICE vehicles to electric vehicles and in the process, reducing our dependence on oil.
As a whole, Union Budget 2019 is expected to be an inclusive budget, with benefits and incentives being provided to the lower strata of the economy. The upper-middle class is not expected to receive any significant incentives, apart from marginal income tax cuts. The primary focus of the government will be job creation and increase in private investment, balancing fiscal deficit in the process. Budget 2019 will pave the way forward for the BJP to deliver on unfulfilled promises and tackle complicated economic issues and set the direction for the next 5 years. Let us hope Modi 2.0 starts on the right note.
1 comment
In addition to the last part related to EVs, I would say there are more consequences than just the impact on trade and fiscal deficit. The electrification of the transport and commute systems will inevitably result in an increase in demand for energy. And setting up such infrastructure for energy, especially if the goal is to leverage more renewable sources, will take time. So the deadlines put down by the policy makers are probably more of an arm-twist to bring about the change at the end of the automobile OEMs. But realistically speaking, the migration from ICE to EV will need to be more transitional in nature, with HBEV (hybrids) playing a key role in between. And about the infrastructure needed for energy, there will definitely be more investments in this space along with manufacturing.