Notes from an Investor's Diary

Friday, 01 February 2019

Interim Union Budget FY20 - Election speech to wrong audience
The interim Union Finance Minister of India presented an interim Union Budget for FY20 today
in the parliament.
Breaking the convention, the acting finance minister decided to launch couple of major
schemes having material fiscal implications for the prospective governments.
He also announced some changes in income tax rates arguing that these are urgent and
cannot wait for four months!
The acting finance minister took the opportunity to make an emphatic election speech, and
virtually presented the party's manifesto for forthcoming general election.
The focus of the speech was clearly to lure voters from farming, urban poor and middle class
groups, but was presented to wrong audience.
Key Budget announcements
Beta version of Universal Basic Income
The minister announced annual grant of Rs6000 to all farmers owning less than 2 hectare land
in the country. Under the “Pradhan Mantri Kisan Samman Nidhi (PM-KISAN)”, every year 3
installments of Rs2000 each would be transferred to bank accounts of farmers owning less
than 2hectare (appx 5acre) of land. The government expects around 12crore small and
marginal farmer families (appx 50% of the country's population) to benefit from the scheme. It
is not clear whether this scheme would be applicable to landless famers also.
The scheme comes into effect from December 2018, and Rs20000cr have been provided in
FY19 revised estimates for the scheme.
Rs75,000cr have been provided for the scheme in the FY20 budget.
This is a welcome step and should help the farmers to some extent. However, the negative
aspect is that the government has cut allocation to 16 out of 19 Green Revolution Schemes
(crop productivity improvement efforts) to allocate money for this scheme. This is pure short
sightedness and populism.
Pension Scheme for Urban Poor
The minister announced a mega pension yojana namely 'Pradhan Mantri Shram-Yogi
Maandhan' for the unorganized sector workers with monthly income upto Rs15,000. This
scheme shall provide them an assured monthly pension of Rs3,000 from the age of 60 years.
An eligible worker joining the scheme at the age of 29 years will have to contribute only Rs100
per month till the age of 60 years. Similarly, a worker joining the scheme at 18 years, will have
to contribute as little as Rs55 per month only. The Government will deposit equal matching
share in the pension account of the worker every month. The government expects at least
100mn workers to avail the benefit of this scheme.
This again is a welcome step.
However, the moot point is that what would be the relevance of Rs3000/month after 30years!

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 31 January 2019

Railways' improvement
The acting finance minister, who happens to be the Railways Minister also, expects the
operational efficiency (expenditure to income ratio) of Railways to improve materially from
98.4% in FY18 to 95% in FY20. The Railways’ overall capital expenditure programme is of
Rs1,58,658cr, that sounds pretty disappointing considering the mega plans already announced
for upgradation, improvement and expansion of railways network in India.
Tax proposals
1. The tax rebate under section 87A increased from Rs2500 to Rs12500. With this the
effective tax liability of tax payers with a total taxable income less than Rs5,00,000 would
be NIL.
2. Standard deduction for salaried tax payers increased to Rs50,000 from Rs.40,000 earlier.
3. Second self occupied house exempted from payment of tax on notional rent.
4. TDS threshold for interest on saving accounts raised from Rs10,000 to Rs40,000.
5. TDS threshold for rent on commercial properties raised from Rs1,80,000 to Rs2,40,000.
6. For taxpayers having a long term capital gain of upto Rs2cr, the exemption under section
54 could be availed for two house properties, instead of one earlier.
7. For affordable housing developers benefits under section 80-IBA extended for one more
year, i.e., for the project approved till 31 March 2020.
8. Period of exemption on tax on notional rent on unsold inventory for real estate developers
increased to 2yrs from one year earlier.
10 point development program for next decade
1. To build physical as well as social infrastructure for a $10trn economy and to provide ease
of living through next generation infrastructure of roads, railways, ports, urban transport,
gas & electric transmission, inland waterways, quality educational system.
2. To create a Digital India reaching every sector of the economy, every corner of the country
and impacting the life of all Indians.
3. To make India a pollution free nation with green Mother Earth and blue skies. India to
drive on Electric Vehicles, and Renewable becoming a major source of energy supply.
4. To expand rural industrialization using modern digital technologies to generate massive
employment. This will be built upon the Make in India approach to develop grass-roots
level clusters, structures and mechanisms encompassing the MSMEs, village industries
and start-ups spread in every nook and corner of the country.
5. To clean rivers, with safe drinking water to all Indians, sustaining and nourishing life and
efficient use of water in irrigation using micro-irrigation techniques.
6. Besides, Sagarmala, to develop inland waterways faster.
7. To become the launch-pad of satellites for the World and placing an Indian astronaut into
space by 2022.
8. To make India self-sufficient in food, exporting to the world to meet their food needs and
producing food in the most organic way.
9. To make India healthy, by providing a distress free health care and a functional and
comprehensive wellness system for all.
10. To make India Minimum Government Maximum Governance nation.
 31 January 2019

Some key budget statistics

FY20BE (Rs cr) Change vs FY19RE Remarks
GST 761200 17% This apparently assumes 19-20% growth for non-farm sector.
With 30mn marginal assessees paying no tax, this assumes
Personal income Tax 620000 17%
average 20% rise in persoanl income of tax payers
Corporate Tax 760000 13%

Gross Market Borrowings 760000 33%

With nominal GDP growing 10%, and fiscal deficit same as FY19,
Net Borrowings 473122 12%
why should net borrowing rise 12%
Fiscal Deficit 703999 11%

Effective Revenue Deficit 269474 28% Sharp rise in revenue deficit despite higher tax revenue
What is the assumption of deflator here 2% or 3%.
Nominal GDP 20705853 10%
What is the forecast for Real GDP growth.
The cash level of PSU has fallen. The debt levels have risen. Profitability is
Dividend from PSU 53159 18%
down.
Dividend from RBI 82911 12%
Assuming that raising TDS threshold will result in so much rise in NSSF
Small Saving Deposits 1685497 113%
funds, seems bit streched.
Disinvestment 90000 12.5% Irrelevant as most of it is happening through book entries only.

Capital Expenditure 328406 8.6% On real basis, capital expenditure growth would be down

Revenue Expenditure 1851115 12% No minimu government

90% of the higher allocation is for the Income Support Scheme.
Rural Sector allocation 129550 91% 16 out of 19 Green Revolution (productivity improvement) schemes

Fiscal improvement paused

Deficit (%of GDP)

5%
4.10%
3.90%
4%
3.50% 3.50% 3.40% 3.40%
4%
2.90%
3%
2.50% 2.60%
3% 2.20% 2.20%
2.10%
2%

2%

1%

1%

0%
FY15 FY16 FY17 FY18 FY19RE FY20BE

Fiscal Deficit Revenue Deficit

 31 January 2019

Reliance on small savings increased to lessen market borrowing

For deficit financing reliance on Small Savings rising

22% 8
7
20%
6
18%
5
16% 4
3
14%
2
12%
1
10% 0
FY16 FY17 FY18 FY19RE FY20BE

Fiscal Deifcit (Rs trn) % financing via Small Savings

 31 January 2019

Some key targets missed

 31 January 2019

Public sector balance sheet stretching

 31 January 2019

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