Union

Interim
Budget 2019

Finance Discussion
Group-
IIT Kanpur

Date: 5th February 2019

Key terms
Difference between interim budget and full
budget

Receipts
• Revenue receipt
• Capital receipt
Expenditure
• Revenue expenditure
• Capital expenditure
Deficit
• Fiscal deficit
• Primary deficit
• Revenue deficit
Revenue receipt

These are proceeds of Revenue

taxes, interest and Receipts

dividend on government
investment, cess and
other receipts for Tax Revenue
Non Tax
Revenue
services rendered by the
government
Direct Tax Interest
Indirect Tax
Income tax
GST Profits
Wealth tax
Excise Duty Dividends
Corporation tax
Capital receipts

Government receipts which

Capital Receipts
either
(i) create liabilities (e.g.
borrowing)
(or)
(ii) reduce assets (e.g. Borrowings Reduce assets
disinvestment)

Disinvestment Loan Recovery

Small savings
Revenue Expenditure
An expenditure that neither creates assets nor reduces a liability is categorised as revenue expenditure

Salary of employees Interest Payments Grants Subsidy Pension

Capital Expenditure
An expenditure which either creates an asset (e.g., school building) or reduces
liability (e.g., repayment of loan) is called capital expenditure

Investment in real Investment in Repayment of loan

capital asset financial asset
Fiscal Deficit
• Fiscal deficit is defined as excess of total budget expenditure over
total budget receipts excluding borrowings during a fiscal year

• Debt trap : Government borrowing to finance interest payment might

lead to a vicious cycle and may lead to a debt trap.

• How is fiscal deficit met?

• Domestic source : public and commercial banks by tapping of money deposits
in provident fund and small saving schemes
• External source : World Bank, IMF and Foreign Banks
• Deficit financing : Government issues treasury bills which RBI buys in return
for cash from the government. This cash is created by RBI by printing new
currency notes against government securities
Primary deficit
• Primary deficit refers to difference between fiscal deficit of the
current year and interest payments on the previous borrowings.

Primary Deficit = Fiscal Deficit – Interest Payments

• It indicates how much government borrowing is going to meet

expenses other than interest payments

• A low or zero primary deficit indicates that interest commitments (on

earlier loans) have forced the government to borrow.
Revenue deficit
• Revenue deficit is excess of total revenue expenditure of the
government over its total revenue receipts
• The deficit is to be met from capital receipts, i.e., through borrowing
and sale of its assets
• Given the same level of fiscal deficit, a higher revenue deficit is worse
than lower one because it implies a higher repayment burden in
future not matched by benefits via investment
 Key highlights
 Continued focus on next generation Infrastructure, gas and electric transmission,
defence, consumption and affordable housing

 Aspire to become USD 5 trillion economy over the next 5 years and USD 10 trillion
over next 13 years

 Fiscal deficit as per revised estimate for FY19 and budget estimate for FY20 to be at
be 3.4%.

 Gross market borrowings requirement for FY20 has been budgeted at Rs. 7.10 lakh
crs, which includes repayments of Rs. 2.37 lakh crs making the net borrowing as Rs.
4.73 lakh crs.
 Key Highlights
 Total dividends are budgeted at Rs 1.36 lakh crs in FY20 against collection of Rs 1.19
lakh crs in

 FY19. For FY19, the govt. is expecting additional dividend of Rs.28,000 crs from RBI,
over and above Rs 40,000 crs of annual dividend paid in August.

 Disinvestments are budgeted at Rs. 90,000 crs in FY20 against revised estimate of Rs.
80,000 crs for FY19.

 Current Account Deficit (CAD) is likely to be at 2.5% of GDP

 Rs. 19,000 crs allocated towards Gram Sadak Yojna as against Rs. 15,500 crs in FY 19.

 Defence budget increased to Rs. 3 lakh crs.

Trend Analysis
Receipts Expenditure
27.8 27.8
24.6 24.6 24.5
19.8 21.4 19.8 19.8 21.4 21.4
17.9 17.3 17.9 16.9 18.8
16.6 16.6 15.4
13.7 14.4 14.7
11 12
7.1 7.3 8.1
5.6 6 6 3.4
2 2.5 2.8 2.6 3.2

FY15 FY16 FY17 FY18 FY19(RE) FY20(BE) FY15 FY16 FY17 FY18 FY19(RE) FY20(BE)

Revenue Receipts Capital Receipts Total Receipts Revenue Expenditure Capital Expenditure Total Expenditure

Deficit Borrowings and Debt

7 48.9
6.3 46.8 47.1 46.7 46.5 47.3
5.9
5.1 5.3 5.4
4.4 4.7
4.1
3.7 3.4 3.2
5.9 5.9 5.8 5.9 5.7 7.1

FY15 FY16 FY17 FY18 FY19(RE) FY20(BE)

FY15 FY16 FY17 FY18 FY19(RE) FY20(BE)
Gross borrowings Debt/GDP (%)
Revenue Deficit Fiscal Deficit Gross borrowings Debt/GDP (%)
 Indian Budget Highlights- Agriculture
• INR. 60,000 crore was allocated for the MNREGA
• Under Pradhan Mantri Kisan Samman Nidhi, 6000 rupees per year for each farmer, in
three instalments, to be transferred directly to farmers' bank accounts, for farmers
with less than 2 hectares land holding
• This initiative is likely to benefit 12 crore small and marginal farmers, at an estimated
cost of INR 75,000 crore, which is around 0.36% of the GDP
• Government has announced 2% interest subvention for farmers hit by natural
calamities and another 3% for relief for timely repayments. – This will help both
farmers and the banks trying to recover loans
• Separate department for fisheries and 2% interest subvention on loans to fish farmers
 Indian Budget Highlights- 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
Indian Budget Highlights- Taxation
While there are no changes proposed in personal Income Tax rates and slabs, the
Government has made certain key proposals to provide relief to small taxpayers,
especially to middle class and salaried earners in the form of:
• Rebate on tax for total income of up to INR 5,00,000 for individuals
• Increase in standard deduction from INR 40,000 to INR 50,000 for salaried
employees
• Prescribed monetary threshold for deduction of tax on interest from bank or Post
Office deposits increased from INR 10,000 to INR 40,000
• Ceiling of payment of gratuity has been enhanced from Rs. 10 lakh to Rs. 20 lakh
Indian Budget Highlights- 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.

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
Portfolio Takeaways
Asset Class Impact

Budget guided by mission to strengthen agriculture, rural development, health,

Equity education and infrastructure sectors. Poised well for consumption and allied
sectors
Neutral – Short end bonds. One round of rate cut may still happen.
Debt Negative – Long end bonds. Basis fiscal slippages and higher government
borrowings, we expect headwinds and volatility for long end bonds

Positive only for Affordable Housing Projects.

Government announced few more step related to affordable homes in

continuation of many measures which have been taken by the government in
Real estate recent history
The overall tone is positive for things moving forward, the current stress caused
due to the lack of sales momentum in premium and high end residential
property will continue to impact the sentiment of Sector on overall basis