Union Budget FY20
The Thrust of Budget Underlines A Growth Philosophy DBT Strategy for Sustainable Growth & Development JAM JAM DBT NREGA, ICDS, NEM NHM Disclaimer: The graph is only a visual representation of a general theme of the budget. It is only to illustrate the expectation from outlay. 2
Key Budget Proposals Budget 2019 Revised Fiscal Deficit for FY19 is 3.4% of GDP No TDS up to interest of Rs 40,000 from banks Individual having Rs 5,00,000 annual taxable income will get full tax rebate. Government has increased tax-free gratuity from Rs 10 lakh to Rs 20 lakh Salaried individuals standard deduction has been raised to Rs 50,000 from Rs 40,000 earlier. FY20 Capital Expenditure is estimated at Rs 3.36 lakh crore Total expenditure for FY20 increased 13% to Rs 27 lakh crore India s Debt-to-GDP is 46.5% at FY17-18 should be brought to 40% by FY24-25 No income tax on notional rent on 2 nd self occupied home Data as on 1 st Feb 2019; Source: News sites, GoI 3
Key Themes - Boosting Farm Income; Consumption And Real Estate Rural and farm income focus: Boost to farm income: Direct cash transfer to farmers (with land holdings of up to 2 hectares) of INR6000 annually, costing INR750bn in FY20E. Consumption thrust: The cumulative effect of the cash transfer to farmers and the tax benefits to the middle income class will be a boost to consumption. Incomes of up to INR500,000 receive full rebate, an increase from INR250,000 Reviving the real estate sector: Measures to help revive the property sector and continued thrust on affordable housing. While the measures aimed at the real estate space maybe small and incremental, it gives a message that the Government is looking at the sector as a tool to add to overall economic growth; Fiscal consolidation but only over the medium term : The budget tries to strike a midway path between fiscal prudence and the need to address the farm sector distress and boost farmer income. The fiscal deficit target set at 3.4% of GDP for FY20BE, same as FY19RE Glide path towards achieving 3% of GDP by FY21 Nominal GDP growth assumptions appears reasonable: Assumes a nominal GDP growth of 11.5% in FY20E 4
(Less) Income Tax On Middle Class More Money in the Hands of the Consumers Income Old Tax Liability New Tax Liability Total income up to Rs.2,50,000 Nil Nil A > Rs. 2,50,000 and <=Rs. 5,00,000 B > Rs. 5,00,000 and <=Rs. 10,00,000 5% (of amount>rs. 2,50,000 & <= Rs.5,00,000) A+ 20% (of amount> Rs. 5,00,000 & <=Rs.10,00,000) Nil. Because of Tax rebate of Rs. 12,500 No Change > Rs 10,00,000 A+B+30% (of the amount by which the total income exceeds Rs.10,00,000) No Change Standard deduction has been increased from Rs. 40,000 to Rs. 50,000. This will reduce tax liability marginally for all income categories Education Cess 2% applicable Surcharge 1% applicable This is as per Budget proposal please consult your tax advisor for details. Source: Union Budget FY20 Documents 5
Tax Rebate For Individuals Explained Through An Example Income (in Rs.) 10,25,000 10,30,000 Less: Standard Deduction -50,000-50,000 Less: Deductions u/s 80 C -1,50,000-1,50,000 NPS Tier I -50,000-50,000 80D (Medical Insurance For Self) -25,000-25,000 80D (Medical Insurance for Senior Citizen Parents) -50,000-50,000 Deduction on home loan interest for a self occupied property -2,00,000-2,00,000 Taxable Income 5,00,000 5,05,000 Income Tax Payable 12,500 13,500 Rebate Under Section 87A -12,500 No Rebate Tax Liability Nil 13,500 Deductions and liability calculated as per proposed interim budget FY-20. This is only to understand the tax proposal. Please consult your tax advisor for details 6
Budget At A Glance In Rs. Lakh cr. Source: Union Budget FY20 Documents. 7
Major Outlay For Various Schemes By The Union Budget In Rs. Lakh cr. Major Scheme Outlays FY18 FY19 FY20 Trend Line Spend Philosophy National Food Security Subsidy (FCI) 61982 140098 151000 Social Security Income Support Scheme... 20000 75000 Social Security NMREGA 55166 61084 60000 Social & Physical Infra Transfer to National Investement Fund 28625 40060 50587 Divestment Urea Subsidy 44223 44995 50164 Social Security Road Works 36849 40906 45880 Physical Infra Manufacturing Suspense 29403 35829 39612 Accounting National Education Mission 29455 32334 38572 Social Infra NHAI 23892 37321 36691 Physical Infra Food Subsidy for Decentralized 38000 31000 33000 Social Security National Health Mission 32000 31187 32251 Social Infra Direct Benefit Transfer 13097 16478 29500 Social Infra Umbrella ICDS 19234 23357 27584 Social Infra Pradhan Mantri Awas Yojna 31164 26405 25853 Social & Physical Infra Nutrient Based Subsidy 22244 25090 24832 Social & Physical Infra Others 461297 521888 578871 Source: Union Budget FY20 Documents 8
Government Borrowing: Marginally Higher in FY20BE Gilt yields now a function of RBI policy and inflation trajectory (INR Bn) FY18 FY19RE FY20BE Gross Borrowing 5880 5710 7100 Net Borrowing 4507 4227 4731 Net Borrowing (adjusted for buyback) 4092 4227 4231 Gross borrowing: Higher in FY20BE vs FY19RE Net market borrowing: Marginally higher in FY20BE than in FY19RE (adjusted for buyback) Small savings schemes continue to fund a meaningful part of the budget deficit Inflation: Likely to average 3.5-4% in FY19E; benign food prices to keep CPI inflation within RBI s medium term target of 4% Policy rates: RBI could change policy stance to neutral from calibrated tightening; Rate movement to be data dependent; case for policy rate cut exists Source: Union Budget FY20 Documents 9
Welfare Budget May Not be All that Expansionary 2017-2018 Actuals 2018-2019 Budget Estimates 2018-2019 Revised Estimates 2019-2020 Budget Estimates Fiscal Deficit -3.5-3.3-3.4-3.4 Revenue Deficit -2.6-2.2-2.2-2.2 Effective Revenue Deficit -1.5-1.2-1.1-1.3 Primary Deficit -0.4-0.3-0.2-0.2 Source: Union Budget FY20 Documents 10
Fiscal Deficit Projections Fiscal Indicators - Rolling Targets as a % of GDP Revised Estimates Budget Estimates (Projections) 2018-19 2019-20 2020-21 2021-22 1 Fiscal Deficit 3.4 3.4 3.0 3.0 2 Revenue Deficit 2.2 2.2 1.7 1.5 3 Primary Deficit 0.2 0.2 0.0 0.0 4 Gross Tax Revenue 11.9 12.1 12.1 12.2 5 Non-Tax Revenue 1.3 1.3 1.3 1.3 6 Central Government Debt 48.9 47.3 45.4 43.4 Source: Union Budget FY20 Documents
Fiscal Consolidation Continues Source: Budget Documents, Credit Suisse Research 12
Government Funding Budget Through Tax Rather Than Borrowing Tax to GDP Rising Steadily Source: Budget Documents, Credit Suisse Research 13
Non-Market Financing Of Deficit & Extra-budgetary (Off-balance sheet) Spending Increasing Source: Budget Documents, Credit Suisse Research 14
Tax Growth Assumptions Though Stretched Looks Achievable Source: Budget Documents, Credit Suisse Research 15
Non-Tax Targets Have Increased Source: Budget Documents, Credit Suisse Research 16
Summary of Our Sectoral Outlook Infrastructure Real Estate Cement Building Materials FMCG Auto Capital Goods Pharma Telecom Oil & Gas Agriculture BFSI Sector Outlook Neutral Neutral Neutral for HFCs Source: Internal Research. 17
UNION BUDGET FY20: SECTORAL IMPACT 18
Agriculture: Sector Budget Proposal Nature of Impact Comments Agriculture Pradhan Mantri KIsan Samman Nidhi (PM-KISAN) - Landholding farmer families, having cultivable land upto 2 hectares, will be given INR 6,000 per year, in three equal instalments of INR 2,000 each. Around 12 crore small and marginal farmer families are expected to benefit from this. Can help improve demand for agricultural inputs Fertilizer subsidy - Total fertilizer subsidy allocated is INR 750bn (INR 500bn for urea + INR 250bn for complex fertilizers). For complex fertilizers, the subsidy would be not sufficient if current prices of raw materials are maintained Mixed for Urea fertilizer companies and Negative for complex fertilizer companies Irrigation - Pradhan Mantri Krishi Sinchai Yojana (PMKSY)- Per Drop More Crop, allocation has been increased to INR95bn from FY19 revised budget of INR 83bn. Can help improve demand for agricultural inputs Crop Insurance - Pradhan Mantri Fasal Bima Yojna (PMFBY) budget provision of INR 140bn in FY20 vs budget provision of INR 130bn in FY19 Can help improve demand for agricultural inputs Fisheries and Animal Husbandry - Benefit of 2% interest subvention to the farmers pursuing the activities of animal husbandry and fisheries, who avail loan through Kisan Credit Card. Further, in case of timely repayment of loan, they will also get an additional 3% interest subvention. Aquaculture and Cattle industry to benefit from the same Source: Internal Research.
FMCG & Auto: Sector Budget Proposal Nature of Impact Comments Consumer Assured Income to marginal farmers( 120mn HHs) Higher Outlay for MNREGA Income tax exemption for income till INR 500k & higher standard deduction Will boost farm income and thus rural consumption Will boost rural income and thus rural consumption Slight increase in disposable income to boost consumption Boost to real estate/housing sector Home improvement companies to benefit 12.5% hike estimated in compensation cess Negative May result in slight tax hike on sin goods including cigarettes and chewing tobacco Auto Steps to boost rural income for Farm equipment and two wheeler manufacturers Increase in outlay for construction of roads for MHCV and tractors Source: Internal Research.
Infrastructure, Real Estate: Sector Budget Proposal Nature of Impact Comments Infrastructure Roads sector outlay up 21% to INR 1.47tn for both developer and construction companies. Railways Capex up 9% to INR 1.6tn for contractors PMAY allocation gone down marginally from INR 275bn to INR 258bn Neutral Focus remains on creation of affordable housing. for construction contractor more than developers. Capital expenditure growth budgeted at 6% for FY20 Negative Govt. spending on infrastructure to be muted, can put some pressure on balance sheet of EPC companies. Real Estate Benefits under section 80-IBA extended till March 2020 (no tax for developer working on affordable housing) Developers looking to launch more affordable housing projects get an extension. Notional rent on unsold inventory to be applicable only post 24 months Earlier, the tax was levied at the end of one year. for an otherwise subdued market with high inventory. Developers will have more room to hold inventory. Capital gains exemption U/s 54 to be available to 2 properties vs 1 earlier This is subject to capital gains of up to INR20m and can be claimed only once in lifetime. However, it will help improve demand. Deemed LOP clause on 2nd owned house is relaxed Buyers will not be impacted by deemed taxation, while benefit of interest on loan will also be available. It can fuel demand for 2nd home. Source: Internal Research.
Cement and Building Materials: Sector Budget proposal Nature of impact Comments Several benefits given to real estate: (a) no tax imposed on notional rent on second self-occupied house, (b) Tax on notional rent on unsold inventory to be levied after 2 years instead of one, (c) extension of one more year to register for affordable housing projects, (d) gain from one home can be spread across 2 home purchases (e) there will be no TDS on house rent up to Rs2.4 lakh per year Cement and building material Housing and real estate sector accounts for ~65% of overall cement consumption in India and this will increase the overall cement demand. Housing demand will have spillover effect on building materials demand as well Allocation to PMAY (Urban) in FY20 increased by 5% to INR 68.5bn vs INR 65bn (BE) in FY19. However PMAY (rural) allocation has been reduced by 10% to INR 190bn in FY20 vs INR 210bn (BE) in FY19 Source: Internal Research. For Pradhan Mantri Gram Sadak Yojna the allocation has been increased from INR 155bn (RE) in FY18-19 to INR 190bn (BE) in FY19-20 Allocation to NHAI has been increased by 18% to INR 1,169bn (BE) for FY19-20 Allocation to highways budget increased by 6% to INR 830bn (BE) for FY19-20 Mildly Roads have a lesser contribution to overall cement demand and irrigation is more driven by state budgets.
Oil & Gas, Pharma and Telecom: Neutral Sector FY19 Budget Proposals Nature of Impact Comments Oil & Gas Petroleum subsidy allocation of INR 375bn Neutral Allocation of INR 337bn to be utilized for carry forward from FY19 and FY20 gross under-recovery. At USD65/bbl, we estimate gross under-recovery at INR 297 bn. Balance amount will have to be met by either supplementary grants or price hikes. If not, oil cos. can be asked to bear, which is low probability. Pharma Ayushman Bharat - Universal health coverage for 500mn people for up to INR500,000 per year Neutral Outlay increased from INR24bn to INR64bn. Would help in growth in Diagnostic, Pharma and Hospitals Telecom Proceeds from License fee and spectrum charges from telecom service providers at INR 415bn against INR 39bn in FY19 RE Neutral As per expectation government is not planning for spectrum auction in FY20. INR 415bn comprises only recurring charges and deferred payments from earlier spectrum auctions. The estimate builds in 6% growth which is realistic. Source: Internal Research.
Capital Goods: ; BFSI: positive for HFCs Sector Budget Proposal Nature of Impact Comments Capital goods Defense capital acquisition outlay of INR 1034bn against INR 940bn for FY19 RE Growth of about 10% much better than the growth of 4% for last year Railway capex increased by 14% to INR 1.59tn from INR 1.39tn in FY19RE Continued thrust on new capacity building new lines, gauge conversion, track renewals and in metropolitan projects. from EPC companies. Wagon procurement increased from 11k to 18k Outlay for roads, Metro and rural roads increased from INR 1.52tn to INR 1.85tn Increase of 21.7% over last year provides scope for EPC and equipment companies to grow INR 750bn outlay for income support for small farmers This would increase demand for small consumer durables. Banking and Financial services Tax benefits for individuals and home buyers Neutral to Marginally positive for housing sector and so for housing finance players including NBFCs Source: Internal Research. 3 PSU Banks removed from RBI's Prompt Corrective Action (PCA) Mildly These banks will be able to start lending; risk management practices remain the key Net borrowing programme left largely unchanged Mildly GST and tax revenue momentum is key to meeting the budget estimates
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