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The FY19 Budget could more likely chase votes than growth

Published 2 years ago on Jan 23, 2018 Read

In about a week, finance minister Arun Jaitley will present the FY19 Budget on behalf of the Modi-led BJP government. Given that it precedes the 2019 general election, it is being seen as a major vehicle for the BJP government to push through tax sops for urban voters and measures to boost rural economic spending. While the expectation is that sops for the rural populace will be on the higher side, investors seem to be far from worried. The market is not showing any signs of nervousness and is trading at an all-time high! The talk about the exemption period of long-term capital gains being extended from one-year to three-years has had no effect either.

This will also be the first Budget after the introduction of the Goods and Services Tax and there could be revenue raising measures to counter any projected shortfall in tax collection. As eight state elections are due in 2018, agriculture, rural infrastructure and affordable housing could get a major allocation. ‘Doubling of farm income’ could well be a major talking point and increase in development spending could end up hogging disproportionate limelight. ‘Not enough job creation’ is the stick often being used by the Congress party to beat the present government. Hence, some scheme to create rural jobs through infrastructure funding could be in the works.  

If the analysts are guessing right, we could see some or all of the following:


This is the big one and the market awaits the details of the recapitalization program for loss-making banks. Clarity is expected on PSU bank consolidation. To reduce rural distress and attract votes, agri credit allocation could be increased.


In the Gujarat assembly election, rural distress is said to have cost BJP some seats and with upcoming elections in states like Karnataka and Madhya Pradesh, the BJP cannot afford to ignore the agriculture segment. As they now rule most states, MSP determination could be made state specific instead of being at the Centre level now. Schemes like MNREGA, interest subsidy for crop loans and fertiliser subsidy are expected to be major focus areas.

Capital Goods and Infrastructure:

In the past few years, budgetary spending on infrastructure projects had lost steam. Fiscal consolidation apart, FY19 could witness higher budgetary allocation towards roads, railways, metro, defense, and urban infra projects.


The elevated prices notwithstanding, real estate has a multiplier effect on the economy. Therefore, expanding the beneficiaries of Pradhan Mantri Awas Yojana, tax rationalisation for Real Estate Investment Trusts, and an increase in deduction limit on housing loan interest and principal could see action.


Auto-manufacturers are hoping for a financial incentive to replace vehicles older than 10 years. Also, the industry is looking forward to higher Jawaharlal Nehru National Urban Renewal Mission orders and incentives for electric vehicles.


Currently, the government’s healthcare spending is 1% of total GDP which is likely to increase to 2.5%. Also, new schemes to increase health insurance coverage could be announced.