The Finance Minister Nirmala Sitharaman presented her maiden budget to the Indian Parliament. She came to the parliament wielding the budget documents in a red coloured traditional Indian wrapped folder called Bahikhata instead of the customary briefcase that had been used till now. The budget was expected to be one where the finance minister would have to walk a tight rope between helping the ailing sectors of the economy such as the agricultural and small-scale enterprises but at the same time sticking to fiscal responsibility.
Financial Sector: In order to boost the health of Public Sector Undertaking (PSU) Banks and increase credit, the government will provide an additional capital of Rs. 70,000 crore to them. PSU Banks that purchase high-rate pooled assets of Non-Banking Finance Companies (NBFCs) to the tune of Rs. 1 lakh crore in the current financial year can avail a one-time 6-month partial credit guarantee from the government for the first lot up to 10%. Housing Finance Companies that were hitherto regulated by the National Housing Bank (NHB) will once again be regulated by the Reserve Bank of India (RBI).
Startups: Angel tax on startups will be eased with no scrutiny from the Income Tax for startups. 2% interest subvention for GST registered Micro, Small and Medium Enterprises (MSMEs) has been announced and Rs.350 crore allocated. In a further boost to start ups, the government will by 2024 help set up 50,000 new startups and 500 new incubators as well as 100 innovation zones in urban local bodies.
Corporate taxation: In terms of corporate taxes, annual turnover limit for 25% corporate tax has been raised to Rs. 400 crore from Rs. 250 crore. Those taxpayers that have a turnover of less than Rs.5 crore need to file GST tax returns only on a quarterly basis. An important step has been taken in the direction of encouraging cashless payments as the budget proposes levying 2% Tax Deducted at Source (TDS) on withdrawals of Rs. 1 crore annually for business purposes. Listed companies shall also be liable to pay additional tax at 20% in case of buyback of shares, as is the case currently for unlisted companies.
Personal taxation: For the middle classes, the good news is that there has been no change in the rates of personal income taxes. However, the super-rich will have to shell out a 3% surcharge for Rs 2 crore income and 7% on Rs. 5 crore and above. The Finance Minister has also proposed no charge on customers for digital payments.What may affect ordinary citizens though is the hike in customs duty on fuel, gold and precious items. Customs duty on gold and precious metals has been increased from 10% to 12.5%. the budget carries a proposal to increase customs duty on products, such as tiles, vinyl floorings, CC TV cameras, auto parts and other goods in order to provide level playing field to domestic manufacturers and encourage ‘Make in India’ initiative. Those purchasing an electric vehicle will benefit as GST rate for electric vehicles has been cut from 12% to 5%. The government will also provide income tax deduction of an addition Rs.1.5 lakh on interest paid on loans to purchase such vehicles.
Employment and Education: Employment has found focus in the budget with the government planning to set up 80 Livelihood business incubators and 20 technology business incubators in 2019-20 under A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship (ASPIRE). This would be instrumental in the development of 75,000 skilled personnel in the agro-rural industries. The government will focus on skill sets that are required by young people find employment abroad like foreign languages and artificial intelligence. On the frontier of education, the government will establish a National Research Foundation to promote research and a new educational policy will be brought into ‘transform’ the Indian educational system. In order to encourage foreign students to study in India a ‘Study in India’ programme will be launched.
Additional Highlights: The government has announced a plan to make PAN card and Aadhaar interchangeable, which means those that do not have PAN can quote Aadhaar number instead. Further, NRIs will no longer have to wait 180 days to register for Aadhaar and can do so on arrival in India. An additional bonus for NRIs is the merger of the NRI portfolio investment route with foreign portfolio investment route. The government plans to provide every rural family with electricity and clean cooking facilities by 2022. The second phase of PMAY-Gramin will provide 1.95 crore houses to beneficiaries between 2019-22. These houses will have necessities such as toilets, LPG and electricity. Women’s self-help groups (SHG) will be encouraged to be more entrepreneurial with an overdraft of Rs.5,000 allowed to each verified woman SHG member who has a Jan Dhan account.
The Union Budget also touched on issues such as disinvestment of Air India and stated a total disinvestment target of Rs 1,05,000 crores. This year the government has set ambitious targets but also tried to fulfil their electoral promises. With a fiscal deficit target of 3.3% of GDP in 2019-20 revised downwards from the 3.4% earlier envisioned number, the balance between stimulus and purse tightening would need to be taken.
Sector Wise Highlights
Automotive: Requisite scheme to be announced for boosting the setup of mega manufacturing plants for lithium batteries and solar PV cells to make India the global hub for manufacturing electric vehicles. Suggestions have been made to the GST council to reduce GST rate from 12% to 5% for electric vehicles. Basic custom duty will be increased on certain auto parts to promote ‘Make in India’ initiative. Custom duty exemption is proposed on import of certain electric vehicle parts. Positive Impact on Stocks: M&M, Ashok Leyland.
Oil & Gas: The government has announced for increasing infrastructure connectivity including development of gas grids. There is also recommendation of High Level Empowered Committee (HLEC) to be implemented for retirement of old and inefficient thermal plants and addressing of low utilization of gas plant capacity due to paucity of natural gas. The budget has proposed an increase of special additional excise duty and road and infrastructure cess by INR 1 for every litre of petrol and diesel with effect from 6 July 2019. Basic customs duty is proposed at 7.5% of the transaction value for specified goods (imported duty free for petroleum or coal-bed methane operations) disposed off in India in unserviceable and mutilated conditions. Negative Impact on Stocks: HPCL, BPCL and IOCL.
Real Estate: Affordable housing: Tax incentives have been proposed in the form of additional deduction of Rs 1.5 lakh to individuals for interest paid on loan subject to stamp duty value of property not exceeding INR 45 lakh. Model tenancy law is to be introduced to encourage rental housing. Joint development and concession mechanism to be utilized for releasing land from Central Government (including public sector enterprises) for undertaking affordable housing projects. FPIs will be permitted to invest in debt instruments issued by real estate investment trusts. Positive Impact on Stocks: Sunteck Realty
Retail and Consumer Products: Pension benefit to be extended to ~300 lakh retail traders and small shopkeepers with annual turnover of less than INR150 lakh. The “local sourcing norms” in “Single Brand Retail” sector to be relaxed. Business enterprises with annual turnover exceeding INR 5 crore to provide low-cost electronic modes of payment – also no charges or merchant discount rate to be imposed on customers as well as merchants MSMEs to have easy access of credit for loans up to INR100 lakh by providing loans through a dedicated online portal. Positive impact on stocks: ITC, Aditya Birla Fashion, Trent.
Technology: Electronic fund-raising platform — a social stock exchange to be set up to list social and voluntary organizations. Migration to e-invoicing system for comprehensively capturing GST invoices in a centralized system, at the time of issuance. Technology to enable customers of one public sector bank to access services across all public sector banks. Negative Impact on TCS, Wipro & L&T Infotech as SEBI to mull increase in minimum public shareholding for listed entities from 25% to 35%.
Financial Services: 100% FDI to be permitted for insurance intermediaries and to examine suggestions of further opening up of FDI in the insurance sector. NRI Portfolio Investment Scheme to be merged with the Foreign Portfolio Investment Route to boost investment in Indian equities. Investments made by FPIs to be allowed in listed debt securities issued by ReITs and InvITs. Draft plan to deepen the market for long-term bonds, including deepening markets for corporate bond repos and credit default swaps, with specific focus on infrastructure sector. With the view to rationalize STT provisions, in case of exercise of options, STT to be levied on the difference between settlement price and strike price. Tax to be withheld at the rate of 5% on income component (after deducting insurance premium) at the time of life insurance payouts as against withholding tax at the rate of 1% on gross amount of payouts. Interest on bad or doubtful debts in the case of deposit-taking NBFC and systemically important non-deposit-taking NBFC to be charged to tax on receipt basis. Positive impact on Stocks: Gruh Finance, SBI, HDFC Bank.
Chemical: Agro Chemical companies shall have a Big boost as Government’s vision will double farmers’ income along with announcement of 10,000 farmer producer organizations (FPOs). Policies announced in this Budget (e.g., second phase of Bharatmala, public private partnership to build railway infrastructure, affordable housing under Pradhan Mantri Awas Yojana, upgradation of roads connecting villages to rural markets under PMGSY-III, Jal Marg Vikas Project for capacity augmentation of navigation on National Waterways will have indirect benefit on Chemical Sector. Reduction of Basic Customs Duty on: Naphtha reduced from 5% to 4%, Ethylene dichloride reduced from 2% to 0% & Methyloxirane (propylene oxide) reduced from 7.5% to 5%. Positive Impacts on Stocks: India Glycols & Sheela Foam
Telecom: There is increase in the rate of Basic Customs Duty (BCD) on optical fibres, optical fibre bundle and cables from 10% to 15%. Import of capital goods used for the manufacture of populated printed circuit board assembly (PCBA), camera modules of cellular mobile phones, chargers/adapters of cellular mobile phones, etc. have been exempted from Basic Customs Duty (BCD). Also a scheme is to be introduced to invite global companies to set up mega-manufacturing plants in advanced technology areas, such as semi-conductor fabricator (FAB), lithium storage batteries, etc. Positive Impact on Sterlite Technologies & Polycab.
Aviation Sector: Regulatory road map to be implemented for making India a hub for aircraft financing and leasing activities.
Infrastructure: The Government plans to invest INR100 lakh crore in infrastructure sector over the next five years. The Government will come out with a policy to promote Maintenance, Repair and Overhaul (MRO) industry. Inland waterways for cargo transportation are planned to be developed, which in turn will help to decongest roads and railways. PPP model will be introduced to unleash faster development and delivery of passenger freight services. There is a proposal to increase more PPP initiative for metro-rail. Around 1,25,000 km of road length will be upgraded over the next five years, with an estimated cost of INR 80,250 crore. Restructuring of the National Highways Programme will be undertaken so as to create a National Highways Grid of ‘desirable capacity’. The government will push for creation of connectivity through schemes like Pradhan Mantri Gram Sadak Yojana(PMGSY), Industrial Corridors, Bharatmala, Sagarmala and Dedicated Freight Corridors. The government will also focus on rivers for cargo transport and schemes like Jal Marg Vikas would get impetus. Railways require an additional investment of Rs.50 lakh crore between 2018-30, for which the government plans to use PPP model for faster development and for delivering passenger freight services. There is also a plan to launch railway station modernization starting 2019. Positive impacts on: Ultratech Cement, L&T