Interspersed between various couplets and poems, the message of the 2019 Union Budget to me was that the government has stuck to its path of fiscal prudence even as it unveiled longer term goals to take India closer to $5 trillion economy.

Fiscal consolidation still on, target for FY20 cut to 3.3 percent from 3.4 percent

This has been a hallmark for the government, and points to continuity in the broader policy of sticking to its targets. The government has also stated its intent of borrowing in international markets, and this discipline with the Reserve Bank of India (RBI) mandate on inflation targeting will be well accepted by longer-term foreign investors.

Net market borrowing program unchanged at $4.73 trillion and gross borrowing at $7.1 trillion

This along with fact that government will look to tap international markets has brought cheers to local bond participants. India has one of the highest real interest rates, and moves to reduce the interest burden on the entire economy are welcome.

Clear focus on improving digital transaction and reduce cash usage, 2 percent TDS on cash withdrawal of more than Rs 2 crore per year from banksIn continuation of policy of incentivising digital payments, measures like this will improve the overall velocity of money as more transactions get routed through the banking system.

Thrust on affordable and mid-market housingAlong with focus on monetising land of various PSUs, there is definite thrust on affordable and mid-market housing. This continues the path of volume lead growth rather than price lead growth, which is healthy for longer-term prospects of the real estate sector.

Strong recapitalisation on PSU banks with Rs 70,000 crore, giving them growth capital to lend and grow, as credit costs are normalisingThis along with focus on non-banking financial companies (NBFCs) and housing finance companies (HFCs), which are now going to come under regulatory ambit of the RBI signals the importance of non-banks to overall economy. The nudge by the government to bear first loss can provide the much needed impetus for banking system to buy pool of assets from the NBFCs, reducing their dependence on wholesale refinance at the moment.

Consumption stimulusWhile there is no consumption stimulus, and one can argue duty increase on petroleum products as well as continued high taxation on high income earners will impact overall consumption wallet spends. In many ways, the vote-on account budget which relaxed slabs for taxation as well as outlays for rural farmers already provided some consumption boost, which meant there wasn’t much room to provide more sops to consumption categories

Focus on increasing weights in global indicesWith suggestion to the Securities and Exchange Board of India (Sebi) to examine a proposal to increase public shareholding to 35 percent, increasing foreign limits to maximum permissible limit in the sector can potentially improve the foreign investibility factor for many companies, especially the PSUs. Measures like these are likely to be noticed by global indices, which can potentially increase the weight of Indian equities in global ETF.

Make in IndiaThere has been increase in custom duties on many items like air conditioners, cameras, electronics, gold imports, chemicals etc. which will continue to embolden the “Make in India” initiative.

Arbitrage between buyback and dividend for listed companies now overOver the last couple of years, there was significant buyback announced by many listed companies, as they were taxed lesser than returning capital to shareholders by way of dividends. With this arbitrage now closed, we expect companies to be agnostic to capital return programs.

Estate taxMore importantly, there was no mention of introduction of estate tax, which is a welcome relief.

All in all, this is a pragmatic budget that focuses on continuity of government policies with vision on long-term framework to achieve a $5 trillion economy.

First Published:Jul 5, 2019 4:58 PM IST