Pleasing a nation of 1.3 billion people is an unenviable task. Yet, when the finance minister unveils his last budget of the current term, that is exactly what he needs to do. Budget in an election year is always a tricky balancing act for any incumbent government considering that they have to walk a tightrope between fiscal prudence and populist measures. In Budget 2019 , Finance Minister Arun Jaitley's travails are further magnified by the string of recent losses in state elections, lower than expected divestment achieved during the year, lower than targeted collections from GST, weak consumer spending and a fragile farm sector.
We believe while the government will stay tethered to prudence, the balance will tilt in favour of populist measures designed to assuage restless voters who are currently sitting on the fence. We feel that the focus of the government in a populist budget would be to increase the disposable income in the hands of the citizens. This could have a multiplier effect as the increase in disposable income can likely give a fillip to consumption in the country, which will subsequently give a boost to consumer confidence. An incumbent government heading to elections and seeking a second term can certainly benefit from strong consumer confidence. Some of the key expectations from the government in this direction are as follows:
Increase in standard deduction:
There is a very strong case for increasing the standard deduction limit for taxpayers from the current Rs 2.5 lakh to Rs 5 lakh. Some hints for the same can be gleaned from the recent ruling of the government to provide reservation for the economically weaker sections of the society, in which they have defined the weaker section to be any family whose household income in a year is less than Rs 8 lakh.
Increase the limit for 80C:
It has been almost 5 years since the limit for investments under section 80C was revised upwards. We feel that the time is ripe to increase the limit for investments under 80C from the current Rs 1.5 lakh. This could have a positive impact on the markets as well as it will encourage citizens to invest in financial assets.
Real Estate sops with a focus on affordable housing:
The current government's focus on affordable housing has been quite evident. Additionally, the real estate sector has also been encouraging the government to take steps to boost demand in the sector. We believe that this could take shape through an increase in the exemption limit for interest and principal on housing loans which would be in addition to the exemption given under 80C for principal repayment.
Universal Basic income framework/Minimum income for farmers:
Instead of announcing a farm loan waiver, the government could set the stage for crystallising a minimum wage framework for the unemployed on the lines of social security. If not for the masses at large, it could be directed in some way to the agricultural sector, where some basic income is assured for the farmers owning specific acreage of land. By announcing this minimum income for farmers, the Modi government could gain a headway in appeasing the large rural vote-bank.
All the above changes, if implemented, would go a long way in driving the domestic consumption demand in the country and indirectly spurring industrial growth.
Priority sector lending status to MSME:
On the corporate side, we expect the government to maintain status quo on corporate taxation. However, as is evident from recent policy announcements, the SME and MSME sectors will continue to be a focus area for the government. In a bid to further augment this segment, the government could accord them priority sector lending status which would facilitate faster and better access to credit for these companies. For start-ups, doing away with Angel Tax is something on the wish-list. That would ease the burden on young startups, which are looking to raise growth capital from investors.
The government so far has shown immense amount of prudence and has only occasionally resorted to appeasement politics. However, the stakes are higher in an election year and the tenuous balance between fiscal prudence and appeasement politics will have to be managed by the government with a great deal of finesse.