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Budget 2019 will boost consumption in urban as well as rural India

The allocations under Pradhan Mantri Gram Sadak Yojana has been increased to Rs 19,000 crore as against Rs 15,500 crore in 2018-19 for rural roads which should create more jobs.

Sonal Khetarpal   New Delhi     Last Updated: February 1, 2019  | 19:11 IST
Budget 2019 will boost consumption in urban as well as rural India

The announcements in the Budget will put more money in the hands of the middle class and the vulnerable and that will create demand and increase consumption, says Sunil Kumar Sinha, Director & Principal Economist, India Ratings & Research.

The Interim Budget announced that the salaried middle class with an annual income of up to Rs 5 lakh will not be required to pay any income tax, putting more disposable income in their hands which generally goes towards consumption. For farmers who own up to five acres of land will also get an income support of Rs 2000 every quarter, which will be transferred directly into their bank accounts.

People will not just spend more in urban and rural areas, it will also give a fillip to their savings because there will be more money that will not be spent, adds Sinha. This will have an impact on the economy from consumption and savings perspective.

Also, there will be a boost in demand created by announcements in construction and housing sector, says Ranen Banerjee, Partner & Leader - Public Finance and Economics, PwC India.

"Given the election year, it was widely expected that the Interim Budget 2019-20 will be a 'Populist Budget'. The budget has given more sweeteners than expected. Targeted towards the marginalized farmers, rural economy, workers in the unorganised sector, MSMEs, and low income earning population, this budget has addressed the bulk of the population which are most impacted by any turmoil in the economy. We believe that this will help in alleviating some of the stress in the rural sector, have a positive impact on consumption and kick-start the investment cycle. Given such an aggressive expenditure plan and deductions given in the direct tax with no new avenues for revenue collection, achieving the fiscal deficit target for 2019-20 seems ambitious. The latest data on fiscal deficit is that we will miss the target in FY19, the second year in a row and is not credit positive," said Manish Sinha, Managing Director, Dun and Bradstreet

Earlier, there was a tax on the notional rental income on second property. That has been removed. This will not only lead to more disposable income but also increase demand in housing sector. Additionally, given that the capital gains from one estate can now be set off against investments in two properties, this will also boost activity in the real estate sector, says Banerjee. Registration for tax benefits window under affordable housing have also been extended.

This will positively impact the real estate sector and that will provide a boost to the economy, says Banerjee.

Also read: Interim budget ignores pharma, health and education sectors

The allocations under Pradhan Mantri Gram Sadak Yojana has been increased to Rs 19,000 crore as against Rs 15,500 crore in 2018-19 for rural roads which should create more jobs.

However, it might have a significant impact on the fiscal deficit. The fiscal deficit for these years has been on the higher side than what had been slated to be.

Typically, what has been observed in the Interim Budget in the previous years is that usually the income is overestimated and the expenditure is underestimated to keep the fiscal deficit under check. This year too there are several such assumptions and one will have to see how it pans out.

"The disinvestment target is still being maintained while it looks increasingly difficult to achieve. The actual deficit numbers will depend on the realised GST collections over the next two months and the government's ability to meet the disinvestment target over a timeline of one month left for actions before the election code kicks in," says Banerjee.

Also read: Salaried class? Here are key tax announcements in Piyush Goyal's speech you need to know

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