Budget 2020 Review: Neither Good nor Bad

Budget was presented by FM Sitaraman on 1 Feb 2020. Government’s vision is to achieve $5 trillion economy by 2025 but the budget don’t seem to aid this vision. Main theme of the budget was focused on good governance, ease of living etc. Given the rising deficit and banking sector mess, AI did not expect a blockbuster budget and it certainly was not. The right word to describe this budget will be lukewarm. Neither too hot nor too cold. As usual, investors were having high expectations in form of relief on equity taxation and relief on personal taxation, they were largely disappointed as Sensex plunged by 2.5%, while small cap index plunged by 2.2%.

Looking at fine prints, there are some good and bad features of this budget which can have impact across various industries, let’s have a review.

Positives

  • Agriculture & Allied
    • Allocation of ₹2.83 lakh crores towards agriculture sector.
    • Incentives on solar energy, in form of solar water pumps
    • Focus on irrigation system to conserve water.
    • Management & conservation of marine & fishery resources.
  • Housing
    • Extension of tax holiday on builders under affordable housing segment.
    • Extension of additional ₹1.5 lakhs tax benefit (deduction) under interest paid on housing loans till March 2021.
  • Logistics
    • A nation wide policy on logistics management to improve logistics speed with e-governance system using single receipt.
    • Creation of dedicated cold lines in Indian Railways in form of refrigerated coaches in trains to facilitate movement of cold items like milk, poultry & fish.
  • Urban Consumption
    • Relief in personal income tax for income levels above ₹7.5 lakhs and above by introduction of new tax structure. This will help urban consumption as they have most people with income levels above these levels.
  • Financial
    • Deposit insurance coverage extended from ₹1 lakh to ₹5 lakhs This may boost sentiments in fixed deposits post PMC bank kind of incidents.
    • Non-residents will be allowed to invest in Government securities.
    • Partial credit guarantee scheme to boost NBFCs will support liquidity.
  • Capital Market
    • Government allows 100% tax exemption in selected sectors from sovereign wealth funds. This will attract foreign money.
    • Removal of DDT (Dividend Distribution Tax) will incentive companies to issue dividends. However, same will be taxable in the hands of the beneficiary.
    • Disinvestment & IPO of LIC will raise much needed funds for the Government.
  • Aviation
    • Under UDAAN scheme, 100 more airports to be developed by 2024.

Negatives

  • Insurance
    • Under new tax scheme, premium paid on insurance products will not be liable for tax deduction. Practically, almost every ELSS & ULIP is sold under the guile of saving tax. This may get impacted.
  • Remittances / NRI Investments
    • Proposal to tax NRIs who are a resident of no country will be treated as Indian residents and their global income will be taxed as per Indian tax laws. This will hit NRIs from middle east where taxation is zero. However not all NRI in middle east will be impacted. Only those who stay few days in multiple countries in a way that they land up becoming residents of no country. This happens for businessmen who have business in multiple country and they evade taxation in all countries by carefully choosing their stay duration in each country.
  • Cigarette & Tobacco
    • Increase in excise duty on cigarette & tobacco products (10-11% on blended basis) will be a negative for manufacturing companies engaged in such products.
  • Dairy
    • Government plans to double milk production in India from 53.5 million MT to 108 million MT by 2025. Oversupply of milk can push down milk cost, thereby negative for milk product companies.

Overall, this budget is more of a status quo with little bit of changes here & there. It will not majorly boost or buck economic activities in the country. Still certain sectors will get the benefit which can impact the lives of few companies. For example, Government subsidy on solar pumps or tax relief to high income group can boost specific business models. At AI, we will be keeping a close eye on these developments and recommending stocks to our subscriber from time to time. If you are interested to join, click here to read more about our products & offering.

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