Budget 2019 LIVE: From Income Tax Exemption Limit to Fiscal Fillip, Nirmala Sitharaman to Walk the Tightrope

Budget 2019 LIVE: From Income Tax Exemption Limit to Fiscal Fillip, Nirmala Sitharaman to Walk the Tightrope

In the run-up to the Budget presentation, several media reports had quoted sources as saying that Sitharaman will take the sops announced in the Interim Budget further by raising the basic tax exemption limit for individual income tax payers to Rs 3 lakh from Rs 2.50 lakh to cover for the inflationary impact over the years.

The Budget is also expected to reward the middle-class by increasing the ability to buy their dream home. The tax deduction limit on home loan interest may be increased to Rs 2.5 lakh a year from the present Rs 2 lakh limit.

Economists at HDFC Bank, the largest private sector lender, however, say investors and the market should not expect any big surprises from the Budget. Citing "time constraint", they said Nirmala Sitharaman's first Budget will "broadly be a replication" of the interim budget, with some action on the election promises and some tweaks on the tax and expenditure figures.

Some believe Nirmala Sitharaman may also give a big push for infrastructure spending, including on roads and railways to drive growth which had slowed to a five-year low of 5.8 per cent in the first three months of 2019 — well below China's 6.4 per cent. The slowdown is also reflected in high-frequency numbers such as IIP and automobile sales numbers.

The economy has also been impacted by slowing trade, rising protectionism, trade conflict between the United States and China, Brexit, US sanctions on Russia, Iran and Venezuela impacted the domestic economy. The sluggishness in the economy has led to expectations of the Budget containing further stimulus measures to boost the growth through new policy initiatives and continued reforms to achieve accelerated growth and increase in employment.

This may be in the form of a combination of capital infusion in the public sector banks, removing the roadblocks that have crept into the Insolvency and Bankruptcy Code process, providing liquidity to non-bank financial companies (NBFCs), address the agrarian crisis and step up allocations for infrastructure and social sectors.

But, the combined effect of all these would be that the budget deficit may widen to 3.5 per cent of gross domestic product (GDP) in 2019-20 that began on April 1, instead of 3.4 per cent target.

For Sitharaman, the biggest constraining factor is lower-than-expected growth in tax revenues, particularly those of the goods and services tax (GST), something she may look to bridge through aggressive stake sale in PSUs, higher dividend from the RBI, rollover of some FY20 expenditure to FY21, cut back in plan expenditure and increase in off-balance sheet expenditure with portion of subsidies being transferred to state-owned enterprise balance sheet.

The scope of the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) was also recently expanded to cover all farmers which would lead to an increase in outlays from the earlier budgeted Rs 75,000 crore to Rs 90,000 crore along with a new pension scheme. At the same time, she has to live up to the relief promised to small taxpayers in the Interim Budget in February.

Besides, monsoon has been erratic with a 33 per cent deficit rainfall in June, which has slowed Kharif crop sowing.

In an economy that is losing growth momentum, all this bring the tightrope walk of balancing growth with fiscal prudence to the fore.