The Union Budget 2019 and the Financial Market

The 2019 budget was exciting and much awaited since it was the last budget to be presented by the present government. A union budget for an aam aadmi in India is all about the tax reliefs on his earnings. As expected, it brought many lucrative offers to the common middle class man and the farmers and thus played well in winning their praises. The tax redemption till 5 LPA income and the various schemes for farmers came out as the highlights of this fiscal year’s budget.

For those who are interested in wealth management and finance developments, it was a bright day when the Sensex soared 300 points higher when the finance minister presented the budget. The stock market gave a thumbs-up to the budget 2019. The current fiscal budget brought a wave of optimism in the stock market.

There were three main reasons for cheering up the market. First, FM Piyush Goyal told the lower house while presenting the interim budget that India’s fiscal deficit this financial year would be 3.4 percent of the total GDP which is slightly higher than the targeted 3.3 percent. This was a pleasant surprise for the stock and bond investors. He further added that for the current financial year, fiscal deficit has been brought down to 3.4% while the Current Account Deficit (CAD) is to be cut down to 2.19% from 5.6%. He also instilled positivity amongst Indians when he said India is set to become a $5 trillion economy in the next 5 years and aspire to become a $10 trillion economy in the next 8 years. This dream can definitely be fulfilled if all the Indian tax payers honestly pay taxes timely. It was first time in the history of union budget ever that while concluding the union budget, any finance minister has wholeheartedly thanked the Indian honest tax payers and has credited the till date progress of Indian economy to them. Congratulations to Mr. Goyal for this kind act.

Second, the lower or slowing consumption and investment of the Indian earning consumers was posing a major threat to the economy. The tax rebate up to 5 lakhs annual income to middle class tax paying people brought a leap of joy to this 90 per cent of the Indian population. Also, the standard tax deduction of Rs.40,000 has been raised to Rs.50,000. Another reason to cheer up is that tax relief can also be enjoyed by a person earning gross even up to Rs. 6.5 lakhs provided he/she invests in insurance, specified savings, and provident funds. The process of income tax return filing has been made easy and will be processed within 24 hours of filing and the refunds will be initiated accordingly in a speedy manner.

An assured pension scheme of 36,000 per year for unorganized sector workers increased their feel-good factor. The gratuity limit of a service man has increased from Rs. 10 lakhs to Rs. 30 lakhs. Also, the contribution for new pension schemes under the EPFO has been increased from 4% to 14%. This will be highly beneficial to the common working man. This will increase their disposable income and thus give a boost to the consumption.

The union budget did not lag behind while pleasing the small and marginal farmers. The income support scheme of Rs. 6000 yearly for 12 crore farmers who are having less of 2 hectares of land,was welcomed wholeheartedly. Additionally, in years of disasters and natural calamities, the farmers will be provided with an interest subvention of 2% for the complete period of reschedulement of a loan. Farmers engaged in fisheries and animal husbandry will also be provided with an interest subvention of 2%. In case the farmers repay their loan on timely basis, an additional 3% interest subvention will be provided to them.

Third and the last one, the always in-trouble real estate sector was granted material tax relief. Extension of the period of exemption from levy of tax on notional rent on unsold inventories from 1 year to 2 years from the end of the year in which the project is completed will further ease the pressure on the real estate players. Moreover, there will be no TDS on house rent of up to 2.4 lakhs. This also will help the NBFCs which deal with asset quality and growth issues. He also introduced the 4R approach that is to be implemented for clean banking – Recognition, Resolution, Recapitalization, and Reforms.

These three chief reasons of happiness are supported by the extra-budgetary sources for the flagship schemes like MNREGA, Gram Sadak Yojana, Krishi Sinchai Yojana, and the affordable housing scheme.

Another great milestone was the assurance provided by the government that the banks will get any capital required by them. Also, the banks can benefit from the Kissan Samman Yojana.

However, the other side of this seemingly fair coin is the imposition of LTCG, i.e., long-term capital gains tax that proved to be a major dampener to the stock market.

Also, the two demands of the stock market – STT rationalization and DDT relief were not pleased by the union budget.

The rollback of LTCG tax and some relief on dividends to motivate the existing and new investors was also expected but that too was not obliged by the budget.

Besides, the financial market players expect the government to form investment driving policies to boost investment and to fulfil the dream of reaching the $5trillion economy by 2022.

Though on the major side, the financial market is pleased by the current budget, however, as the financial market is susceptible to many other internal and external factors, we have to wait for few more days to actually understand the lasting effects.

In conclusion, considering the tax reliefs, digitalization of government sector and smoothening the process of income tax and GST filing, it can be said that the union budget for the FY 2019 can be called a ‘sweet pill budget’ for the common man, small business enterprises, and the farmers.