'Budget 2019 will ensure sustainable GDP growth in the forthcoming years'

In summary, the budget has nothing in it that would move the market immediately.

Raghvendra Nath

Nirmala Sitharaman presented her maiden Budget on July 5, which largely outlined the government's plans for the next five years.

In the Budget, the government has proposed an array of social and infrastructure reform, similar to other such campaigns including Swatch Bharat, Electricity for All, Jan-Dhan and LPG gas connections.

The plans to provide piped water to every household, Rs 100 crore boost to infrastructure over the next five years and a further push to Affordable Housing will likely bridge the gap in the economy that was created by lack of private investments and will provide the much-needed impetus to GDP growth and income levels.

The government's recognition of financial issues faced by the NBFC sector has also provided a big relief. The partial credit guarantee to the banks for investing in the securitized debt of the NBFC sector will uplift the confidence in the sector. It also gives hope that the government and RBI will finally intervene to ensure that more liquidity is available to the NBFC sector.

Sitharaman also proposed to set aside Rs 70,000 crore that the government will inject as additional capital into public sector banks. This shall provide a boost to deposit growth which, in turn, will result in a higher rate of credit growth.

The proposal to increase minimum public shareholding from 25 percent to 35 percent can turn out to be tricky as there are a lot of MNCs and promotor-led companies in the capital market.  If implemented, the market may have difficulty in absorbing the additional floating stock in these companies.

Nonetheless, fundamentally, it is a very good stop in the long run as it would not only improve the market depth in each stock at a broader level but also enhance the accountability of the companies towards the public.

The government is taking more and more initiatives to ease compliance and broaden tax ambit. A major one this Budget is the replacement of physical scrutiny by a faceless electronic. This is a welcome step as it would eliminate the harassment caused by income tax officers wielding unjust powers.

The biggest setback in the Budget was perhaps the increase in surcharge, which will effectively increase the income tax rates to 39 percent and 42.7 percent for individuals with incomes of more than Rs 2 crore per annum. We feel it is regressive and is in sharp contrast to the lower corporate tax rates being levied to 99.3 percent of the companies and hence could have been avoided.

To conclude, the Budget has nothing in it that would move the market immediately but the long term vision for the country should ensure sustainable high rates of GDP growth in the forthcoming years.

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