'Budget 2020 largely in-line with our expectations'

By Amar Ambani,

The budget was largely in-line with our expectations:

· We expected small change in personal income tax for small taxpayers, rather than an overhaul.

· Fiscal deficit 3.8% vs our estimate 3.7% for FY20.

· Expenditure projection for FY21 largely in-line with our estimate of 13% yoy.

· Fiscal deficit 3.5% for FY21 vs our estimate of 3.7% (LIC and IDBI divestment are the difference maker).

The Positives in the Budget:

· Intention of less govt in business; complete exits in some cases.

· Budget math looks reasonable.

· NRI taxation on income earned in India is a good revenue source.

· Correcting many inverted duty structures.

· Positive for bond markets with no extra borrowing this year and in-line with market for FY21. Enhancing FPI limit in corporate bonds, some govt bonds opened to NRIs.

· Conducive to foreign investment – DDT removed, sovereign wealth funds exempt from tax on int/dividend on infra investment, FPI limit enhanced in corp bonds, concessional rate reduced to 4% on interest payment on municipal bonds and Gift city.

What more could have been done in the Budget:

· While in-line with our expectations, it was a missed opportunity on many fronts.

· Further complicated personal income tax rather than simplifying them.

· Fails to encourage savings with removal of exemptions and deductions; Life Insurance sector severely impacted.

· Animal spirits not revived. Further curbed with DDT removal, which impacts HNIs and Promoters.

· No material change in expenditure pattern. Capital expenditure still poor at 1.8% of total (even lower if adjusted for payments to MTNL and BSNL).

· Demand side measures – Agri allocation modest, Rural allocation flat, MNREGA allocation reduced.

As cited in our budget note, Modi government takes major steps outside the Budget. Some of the following measures could come through in future by govt/other agencies, especially if ramp up in revenue:

· Simplifying GST working.

· Speeden up mining activity.

· Fast track NCLT cases.

· Open up FDI in certain sectors.

· Improve monetary transmission.

· Addressing land and labour laws somewhat.

· Agriculture mandi for transparent pricing.

· Scrappage policy for automobiles.

· Addressing issue of stressed assets (eg stressed fund).

· Further improve ease of doing business.

· Get many public-private (PPP) partnerships going.

(The author is Senior President and Head of Research – Institutional Equities, YES Securities)