Union Budget 2018-19

Union Budget 2018-19

As expected, this year’s budget had all the hallmarks of being populist. Rural largesse, infra push, impetus to health care, standard deductions for the salaried class, and several sops to the senior citizens and lower tax rates for the MSME segment. This effort by the Modi regime is laudable given that the path to fiscal prudence has not been altered. Albeit a small revision to account for the slowdown and farm distress. Fiscal deficit is expected to be maintained at 3.5% of GDP while FY19 provided for further lowering to 3.3%. GDP growth is expected to be maintained at 7.25-7.5% and augurs well for market buoyancy.

We remain bullish on the consumption economy which includes consumer staples and discretionary spends along with infrastructure, healthcare and metal stocks. Insurance sector is also expected to get a thumbs up given the impending merger of the general insurance PSUs and status quo on taxation rates for this sector.

Though several cuts in taxation have been built in a balancing act, the much feared 10% LTCG was introduced on listed equity investments.

Higher MSP (1.5X cost of production) would mean more money in the hands of rural India. However, this coupled with the threat of higher crude oil prices has all the headwinds of being inflationary and could lead to higher interest rates.

Higher MSP of 1.5X cost of production coupled with all time high allocation of ₹11 trillion to boost the flagging rural economy and remedy the farm distress. In addition, several initiatives have been undertaken to support the above (outlined elsewhere in the report).

• Infrastructure thrust continues with highest ever allocation of ₹5.9 trillion with Specific outlays to Road, Rail, Airport and Smart Cities.

• Health care initiative was a big bang announcement aimed at providing benefit to over 10 crore households of up to ₹5 lac per household p.a. Further announcements of setting up of 1 hospital for every three constituencies is a massive out reach program to be ever undertaken. This coupled with setting up of Government medical colleges, at least 1 in each state, is a step in the right direction.

• Salaried employees and senior citizens have been provided with a relief of standard deduction (of

₹40,000) and enhancement of section 80D deductions to ₹50,000 (up from ₹30,000) respectively.

Roadmap of fiscal discipline trajectory continues to be contractionary. Despite economic slow down and farm stress, maintaining fiscal discipline for FY18 at 3.5% of GDP is salutary. Guidance for lowering it to 3.3% for FY19 sends the right signals to the global investment community.

• GDP growth to return to 7.25-7.5% augurs well after considering the twin shocks of demonetisation and GST implementation.

• Divestment target of ₹80,000 crores is a credible number given its success in FY18 to raise ₹1+ trillion exceeding previous budget estimates of ₹0.725 trillion.

Despite apprehensions over the introduction of a 10% LTCG tax, government has managed to prevent spooking the market by grandfathering erstwhile capital gains and levying it prospectively from February 1, 2018. Non abolition of STT inpsite of introduction of LTCG tax coupled with a higher Health and Education Cess will pave the way for higher tax collections.

• Government revenues are budgeted to grow at a 14.6% a tad ahead of nominal GDP growth of 11.3% This is supported by better tax administration , pan India role out of DBT.

Mutual Fund Advisor

MR.K.P.PRABHAGHARAN,

KKP CAPITAL, 9894333189

Mutual Fund Advisor