Interim Budget 2019 : Sectorwise highlights and its Implications

This Interim Budget was on social infrastructure, ease of living and technology led governance aimed at inclusive and equitable growth.

The salaried class with taxable income of up to INR 5 lakh will have higher disposable incomes. Direct Benefit Transfer to farmers will support rural demand. The Pradhan Mantri Shram-Yogi Maandhan Yojana will provide social security to a large number of marginal wage earners in the country. The Real Estate sector will see more activity and the allied sectors of steel and cement will get a boost. With enhanced spending and direct benefit transfers, there is an obvious concern about inflationary pressures. However, given that capacity utilisation is still around 70%, we believe that expectations of inflationary pressure will be muted. The Government’s vision to create a tech-enabled tax system is a welcome initiative. In all, this Budget has set the tone for considerable future discourse.

 

Agriculture Sector

• Total allocation for the Agriculture sector has seen an increase of 73% over 2018-19 (Revised estimate).
• The Government announced the Pradhan Mantri Kisan Samman Nidhi (PMKISAN) scheme, which will provide a guaranteed income of INR 6,000 per year to small and marginal farmers. This will involve an annual outlay of INR 75,000 crore, which is around 0.36% of the GDP (2019-20 Budget estimate).
• Interest subvention of 2% was announced for farmers affected by natural calamities. An additional 3% relaxation will be given for timely repayment of loans. This scheme has also been extended to farmers engaged in animal husbandry and fishery-related activities, and availing loans through Kisan Credit Cards.

Implications

The announcement about financial support will provide some relief to farmers and will address to some extent issues faced in the farm sector. Interest subvention schemes will improve the credit uptake and address farmers’ loanrelated stress. Overall, the announcement for the farm sector is expected to boost rural consumption and demand.

 

Micro, Medium and Small Enterprises (MSMEs)

• 2% interest rebate for MSMEs registered under GST for loans up to INR 1 crore
• Requirement of sourcing by government enterprises from SMEs increased up to 25%, of which, at least 3% to be sourced from women-led SMEs
• Government E-procurement Marketplace (GeM) platform extended to Central Public Sector Enterprises

Implications

Provisions relating to interest rebate will encourage more MSMEs to registerunder GST, which will promote compliance under GST, expand the tax base and boost formalisation of the economy. Improved access and the reduced cost of credit will lower organisations’ production costs and make them more competitive. With the implementation of the GeM platform, MSMEs will have access to a larger market.

 

Social security for workers in the unorganised sector

• The Pradhan Mantri Shram-Yogi Maandhan Yojana has been announced for workers in the unorganised sector with a monthly income upto INR 15,000. The scheme will provide them with an assured monthly pension of INR 3,000. The scheme is contributory and the government will make a matching contribution.

Implications

The scheme will provide old age social security and encourage savings among unorganised sector workers. Increased enrolment should lead to further formalisation of the economy

 

Real estate/Construction

• In the Affordable Housing sector, benefits under Section 80-IBA of the IT Act were extended by a year for projects approved till March 2020. This will allow Real Estate developers to deduct 100% of profits derived from development of affordable housing projects.

Implications

Extension of benefits in the real estate sector will give a boost to construction activity, particularly in affordable housing. Exemption from levy of tax on inventories is likely to encourage investment in the sector. From the consumers’ point of view, benefits of rollover in capital gains and exemptions on income tax on rent will boost housing demand, and is also expected to increase investments in a second house.

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