Budget FY2019: An Overview


Indian Finance Minister Arun Jaitley presented the Modi governments last full Budget for fiscal year 2018-19 today. This pre-election budget aims at alleviating farm distress and creating a New India by focusing on agriculture, rural development, healthcare, education, employment, MSME and infrastructure sectors of the economy. This budget attempts to strike a very delicate balance between pragmatism and populism. As anticipated the expenditure proposal has some shades of populism however the actual spend associated with rural plus agriculture is up by only 6% YoY.

Citi economist believe that the budget math appears credible as the tax revenue growth assumptions (corporate tax-10.2% growth, income tax-19.9% growth & GST-11.5% growth) are reasonable given nominal GDP growth projection of 11.5%. They however point out that if crude oil stays elevated, oil subsidy assumptions could be a risk as it remains unchanged between FY18 & FY19.

The slight deviation in the fiscal glide path is partially offset by the formal adoption of the Fiscal Reform and Budget Management (FRBM) Committee target of debt reduction by bringing down the Debt to GDP ratio to 40%. However measures like increase in minimum support prices for Kharif crops to at least 1.5 times the cost, may turn out to be inflationary and reinforce RBI to maintain its hawkish stance in the next weeks Monetary Policy Committee meeting. Citi economist believe that the unexpected supply of duration in March as per the bond issuance details along with unfavorable shifts in demand dynamics for government bonds could keep Indian fixed income markets under pressure. They also believe that INR will be driven by equity market sentiment and the dollar.

Nifty plunged by more than 100 points on the proposal to introduce LTCG tax on equities, however quickly recovered and closed almost flat for the day (grandfathering should help fray nerves). Bond market on the other hand has reacted very sharply with the 10 yr benchmark yield climbing by 18bps to 7.61% from the previous day’s close of 7.43%.

We present to you the key highlights of the Budget proposal*:


  • Fiscal deficit for FY2018-19 is targeted at 3.3% of GDP against the earlier target 3.0% of GDP. Citi economist had expected 3.2% of GDP.
  • Govt. has accepted the recommendations of the FRBM Committee relating to adoption of the Debt Rule and to bring down Central Govt. Debt to GDP ratio to 40%.
  • Government has also accepted the recommendation to use Fiscal Deficit target as the key operational parameter.


  • Govt. to take reform measures w.r.t. stamp duty regime on financial securities transactions.
  • Government will establish a unified authority for regulating all financial services in International Financial Service Centre (IFSCs) at Gift City.
  • 80,000 crore disinvestment target for FY2018-19, up from 72,500 crore in last year’s Budget.
  • Smaller insurance companies to be merged and subsequently listed
  • Gold Monetization Scheme to be revamped to enable opening of hassle-free Gold Deposit Account.


  • Infra focus remains intact with total infra spend set to increase by another 20% YoY.
  • Govt. confident of completing National Highways exceeding 9000 kilometers length during 2017-18.
  • Bharatmala Pariyojana has been approved - to develop about 35000 kms in Phase-I at an estimated cost of INR 5,35,000 crore.
  • AMRUT programme for providing water supply to all households in 500 cities - State level plans of INR 77,640 crore have been approved.
  • Railways’ Capex for the year 2018-19 has been pegged at INR 1,48,528 crore.
  • Mumbai’s transport system - 90 kilometers of double line tracks at a cost of over INR 11,000 crore. 150 kilometers of additional suburban network is being planned at a cost of over INR 40,000 crore.
  • A suburban network of approximately 160 kilometers at an estimated cost of INR 17,000 crore is being planned to cater to the growth of the Bengaluru metropolis.


  • NITI Aayog will initiate a national program to direct efforts in the area of artificial intelligence.
  • Government to explore ways to use Block-chain technologies. The Government does not consider crypto-currencies legal tender.


  • Free LPG for 8 crore poor families
  • Ambitious National Health Insurance program providing INR 0.5mn per family coverage to 10mn families
  • Increase in MSP to 1.5 times the cost of production for Kharif crops
  • An Agri-Market Infrastructure Fund with a corpus of INR 2000 crore will be set up for developing and upgrading agricultural marketing infrastructure
  • Target of INR 3 lakh crore for lending under PM Mudra Yojana


  • Personal income tax slabs remain unchanged
  • Government has introduced standard deduction of Rs 40,000 in lieu of medical and transport allowance
  • Rationalization of LTCG on Equity - LTCG on equity exceeding Rs 1 lakh will be chargeable to tax at 10% without indexation benefit.
  • However, all gains up to 31st January, 2018 will be grandfathered.
  • 10% tax on distributed income by equity oriented MFs so as to provide a level playing field across growth oriented funds and dividend distributing funds.
  • Short term capital gain will continue to be taxed at the rate of 15%
  • Education and Health Cess has been increased to 4%
  • Custom duty on mobile phones increased to 20% from 15%
  • In order to reduce tax burden on MSMEs and create jobs, corporate tax has been reduced to 25% for companies having up to 250 crore turnover in financial year 2016-17. Last year, the limit was up to a turnover of 50 crores only.

*For more details, please refer to the Budget Document.



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