With the BJP-led NDA government securing a clear mandate, focus has now shifted from politics to governance and economics. The first significant event for the newly-elected government is the Union Budget to be presented on July 5, 2019 by the country's first full-time woman finance minister Nirmala Sitharaman. The Economic Survey will be tabled a day before. Sitharaman had extensive consultations with various stakeholders, including industry bodies, economists and sector experts to seek their feedback. While the Union Budget is an important event, governance decisions are no longer limited to the Budget. However, the government perhaps will use the Union Budget as a platform to place their vision for the next five years.

While the Union Budget may not deviate too much from the interim Budget, the government may tweak it a bit with a hope to reverse the economic slowdown. The government finds itself in a piquant  situation with a slowing economy and lower tax collections. Reviving the economy means the government will have to spend more.

The agricultural sector needs both long-term and short-term measures to fix structural issues to alleviate farm distress. The PM-KISAN scheme has now been extended to all 14.5 crore farmers irrespective of the size of their landholding and some additional steps could be expected like changes in crop insurance scheme and increase in agricultural credit flow. These need to be accompanied by investment in irrigation, cold chain and incentives for food processing. Steps to promote roll out of the National Agriculture Market and reforms in the APMC Act are long-term structural changes that the government needs to look at.

The government should also increase spending in infrastructure, Bharatmala, Sagarmala, affordable housing, sanitation, water for all, regional airports and the National Gas Grid Project programmes. Recapitalization of state-owned banks must be a priority.

Currently, there is a slowdown in private consumption and consumer confidence is low, and the proportion of consumers postponing discretionary spending has increased. The government must initiate measures to boost the consumer and business sentiment.

The auto industry has suffered due to subdued consumer demand, a reduction of GST to 18% from the existing 28% can help not only the sector, but help boost broad-based consumption. But this requires an approval from the GST Council. The customs duty on fully imported commercial vehicles (CV) may be increased to 40% from 25%. Furthermore, budget allocation for electric vehicle promotion is a possible step.

Ayushman Bharat could continue to get a priority in Modi 2.0. It may propose to introduce and increase health budget to upgrade Ayushman Bharat. With the urgent need to add bed capacity for the nation, the deduction under the Section 35AD may be increased from 100% to 150% of capital expenditure incurred by institutions engaged in building and operating a hospital with at least 100 beds. 

While a comprehensive overhaul of direct taxes will need to wait as the committee set up for this purpose. Certain procedures and provisions in the Income Tax Act can be overhauled to reduce compliance burden. Cutting the corporate tax rate to sub-20% in phases and abolition of MAT for companies especially MSMEs can help. While the government has recently provided some relief to start-ups from rules of Angel Tax, more needs to be done. On the personal taxes front, there may not be too many changes to the ones already announced in the interim Budget.  

Initiatives to promote exports and simplification of procedures, faster GST refunds and incentives for private players in infrastructure space should be key focus areas.

The Budget may spell out a roadmap for financial and banking reforms, including consolidation of weak banks. For encouraging equity investments, tweaking LTCG and dividend distribution tax and removal of STT will help. For the financial sector, allocation of funds towards enhancing financial literacy program, setting up of debt market/ ETF, providing separate provisions for life and health insurance, small savings schemes. Hike of the provision for deduction of housing loan interest may be a welcome move. To give a push to the housing sector and incentivise tax payers, the deduction for home loan interest can be raised to Rs 3 Lakh. Refining the process and streamlining it for single window clearances and giving industry status for affordable housing real estate projects shall boost the realty sector.

While much is made of the Budget exercise, it is important to remember that most government initiatives occur throughout the year. The most important policies are largely decided and announced through the year, the Budget is important for fund allocations to these programs. This is a consultative process and not focussed on a single event like the Budget alone.

The author is CEO, Karvy Stock Broking