At the time of budget, all eyes are usually on the stock markets, which are considered a barometer for assessing investor sentiments, state of economy in general and potential impact of government policies. If we rate budget 2019 based solely on that criteria, then obviously it has failed to cheer investors. BSE Sensex tanked 395 points and Nifty closed 135.60 points lower on Friday end of trading. There was heavy selling noticed in auto, metal, power and IT, as some of the budget proposals seem to adversely affect these sectors. But, is the budget really bad or will it work like a bitter pill that will have long-term gains? Let’s analyze budget 2019 in detail and try to ascertain its impact on key sectors.
Banking, Financial Services and Insurance (BFSI)
Union budget 2019 has some significantannouncements for the BFSI sector. The decision of Rs 70,000-crore capital infusion in PSU banks will help these banks to effectively deal with rising NPAs (Non-performing assets). It will also make available funding for NBFCs with good financial health. Another major move is that NBFCs and Housing Finance companies will now come under RBI guidance. This will help improve transparency and streamline regulations. The aim is to make NBFCs at par with financial institutions such as banks and promote consolidation in this segment. Budget 2019 has also simplified KYC rules for FPI (foreign portfolio investment), which will help promote NRI investment.
Insurance gets a major boost with FDI limit in insurance intermediaries increased from 49% to 100%. This will make the insurance sector in India more attractive for overseas investors. Net-owned fund requirement for re-insurers has also been reduced from Rs 5000 crore to Rs 1000 crore.
Budget 2019 has been a mixed bag for the auto sector. Key gainers will be electric vehicle (EV) manufacturers, as GST is proposed to be reduced from 12% to 5%, customs duty has been scrapped on EV parts and income tax deduction can be availed on loans meant for purchasing EVs. These measures will make EVs affordable and more advantageous for customers.
However, the auto industry is unhappy that the budget has not done anythingspecific to check the ongoing slowdown. The auto industry was expecting a stimulus package to revive the auto sector, but the same has not been provided in the budget. The hike in fuel prices is also being considered a negative development for the auto sector.
Nonetheless, some other announcements in the budget can indirectly benefit the auto sector. Capital infusion in banks, upgrade of roads in rural areas, funding for NBFCs and 25% corporate tax limit for companies (Rs 250-400 croreturnover) will indirectlybenefit the auto sector.
Allocation to healthcare sector has been increased by a whopping 15.4% to reach Rs 62,659.12 crore for this fiscal. The funds will meet increased allocation towards National Health Mission (NHM), which aims to set up 1.50 lakh Health and Wellness Centres (HWCs) by 2022. Increased allocation will also cater to National AIDS and STD Control Programme, Pradhan Mantri Swasthya Suraksha Yojana (PMSSY), and launching a National Research Foundation. However, some industry demands have not been met in the budget. For example, there is no incentive for launching new hospitals in tier-II and tier-III cities. Pharmaceutical industry’s demand for 200% weighted deduction of R&D has also been ignored.
Budget 2019 has loads of good stuff for the real estate sector. One of the key announcements is additional deduction of Rs 1.5 lakh for new homes up to Rs 45 lakh. The deduction is applicable on interest paid on home loan and it is in addition to the existing deduction of Rs 2 lakh. This will be a major incentive for homebuyers. To boost ‘Housing for All’, the government has announced tax holiday for developers on profits derived from affordable housing projects. The base year for calculating long-term capital gains has been moved from 1981 to 2001. A new plan to boost rental housing segment is also being prepared. The government is also working on schemes to developinfrastructure in tier-II and tier-III cities. All these measures are expected to boost real estate sector, which is currently experiencing a downtrend.
Thousands of startups are currently functional in India and many more are being launched every month. Startups hold the key to the country’s economic and technology progress, which is why the government has announced some major incentives for these entities in budget 2019. Some of the key announcements for startups include easing foreign direct investment (FDI), promoting digital payment systems, special incentives for EV startups, reduced GST, streamlined labor laws, and relaxation in angel tax norms. The government is also promoting women entrepreneurship through its Women SHG Interest Subvention Programme, which will now be launched in all districts in the country.
IT & ITeS
This sector contributes around 7.9 percent to the GDP and is one of the largest job creators. As this sector will be crucial in achieving$5-trillion economy target, the government has announced plans to train 10 million young professionals. The training will focus on fast-growing fields such as robotics, artificial intelligence (AI), big data, internet of things (IoT), virtual reality, 3D printing, etc. However, IT industry body Nasscom was disappointed that no clarity was provided for the future of SEZs. Existing SEZ benefits will cease in March 2020, but the budget has failed to provide any plan to continue the incentives. Nasscom said that SEZ benefits are being continued by other countries and that it is essentialfor making India a hub for IT services.
Industry leaders are not so happy, as budget 2019 seems to have given a miss to telecom sector. However, industry body Cellular Operators Association of India (COAI) is hopeful that the government will do the needful for this sector in post budget review. The telecom industry is currently saddled with huge debts (7 lakh crore) and was expecting some relief in terms of high taxes and fee. However, there was no announcement regarding this in the budget. Earlier, Communications minister Ravi Shankar Prasad had proposed Rs 30,000 crore worth of relief package for the telecom industry in the form of GST input credits.But the same has not been implemented in the budget. On the contrary, the government is looking to boost its income from license fees and spectrum usage charges (SUC). In the budget, non-auction revenue target has been increased to Rs 50,519.8 crore for 2019-20.
According to experts, budget 2019 provides the building blocks for achieving the $5 trillion economy target. However, it is also being felt that a clear roadmap to boost growth is missing in the budget. It’s good though to know that fiscal deficit has been kept within targets and it will be maintained at same levels in 2019-20. A lot of things will also depend on global economy and developments at the global level. Monsoon shortfall, international trade disputes and factors like Iran oil crisis can have an impact on goals and targets announced in budget 2019.These factors will determine how the budget performs in the coming months.