The Interim Budget 2019-2020 of team NAMO saw the bulls dancing on the street with the benchmark index (S&P BSE Sensex) rising by more than 200 points on the day of the budget. We had expected the last budget before the general elections to be popular, and the government did not disappoint, but it has stuck to its previous focus on growth in the rural economy, as well as the lower and middle classes. As we remarked in last year's budget note, "In all budgets presented including the recent one, the tone has been the same and the emphasis has always been to revive growth in the rural economy, welfare measures for the lower and middle class, improve the quality of education, create job opportunities, infrastructure development, which they believe is the growth driver of the economy, and of course to maintain fiscal prudence". So, while the emphasis has remained the same in this interim budget, the tone is definitely euphoric with significant measures being announced for the aam janta as a last salvo, hoping to remind people of the inclusive growth that the government has stood for since their ascension to power in 2014.
What was also noteworthy was that the government went to the extent of laying down the roadmap for India's next decade. They presented their vision for India 2030 as:
"We are poised to become a Five Trillion Dollar Economy in the next five years and aspire to become a Ten Trillion Dollar Economy in the next 8 years thereafter".
They qualified this vision with a 10-point agenda that will aid in achieving vision 2030:
(1) Physical and social infrastructure for a Ten Billion Dollar economy
(2) Digital India
(3) Pollution free India
(4) Rural industrialisation using modern digital technologies
(5) Clean rivers
(6) Development of coastline and ocean waters
(7) Space programme - Gaganyaan and an Indian astronaut in space in 2022
(8) Self-sufficiency in food
(9) Healthy India
(10) India as a 'Minimum Government Maximum Governance' nation
Although there are umpteen measures in the budget that can be highlighted and discussed, we would like to pick two key measures, which we think will help the overall economy.
(1) Pradhan Mantri KIssan SAmman Nidhi (PM-KISSAN): Under this measure, landholding farmer families having cultivable land upto 2 hectares will get assured income support at the rate of INR 6000 per year. This will benefit 12 crore farmer families and the annual expenditure for this entire exercise is INR 75,000 crore.
The interesting thing here is that this benefit is effective from December 1, 2018, which means that GOI has already worked on the number of people to be included here, and are prepared to pay the first instalment up to March 31, 2019 in this year itself.
(2) Income Tax payers having taxable annual income up to INR 5 Lakh will get full rebate and will effectively not be paying any income tax. This will benefit 3 crore middle class tax payers.
Keeping aside the assessment of whether these measures are populist, the GOI is effectively putting more surplus into the hands of the farmer community and the middle class. This means that India is not only going to go into a consumption spree, but also that household savings in India may increase, which can then flow into the capital markets via direct equities or mutual funds. After all we have seen India singing Mutual Funds Sahi Hai after this Government came to power, and small investors continue to SIP despite the uncertainties in domestic or external markets.
This Government has also sought to impact retail investments through its previous budgets; in its very first budget, there were both positives (uniform KYC; uniform tax treatment for pension funds and mutual fund linked retirement plans) and negatives (increase in the long term capital tax gains from 10% to 20% on transfer of mutual fund units except equity oriented funds; increase in holding period from 12 months to 36 months). However, the interim budget has nothing specific for the mutual fund industry and hence from the budget point of view, life moves on as usual for our investors.
Budgets also have important indications for sectoral strategies in investments. We are happy to note that with every budget our sectoral bets (banking and infrastructure since 2011 and consumption this year) have continued to receive the blessings of GOI. Along with the strict measures to reduce NPAs in the banking system, recapitalize PSBs and rejuvenate infrastructure as the backbone of India's development and quality of life, the interim budget measures to boost consumption mean that we have been right in our sectoral bets in investor portfolios.
Although we would like to give a clear thumbs up to the interim budget, we are concerned about how the GOI is going to maintain fiscal prudence. There is no real clarity on the revenue streams that are going to keep India smiling in the coming years, and this should worry not only the global rating agencies but Indian policymakers as well. To conclude, we would not like to get into the political implications of the budget, but we do believe that team NAMO has defined a good number of measures, which, if implemented, can be lead to a positive growth trajectory for the economy.