Budget FY2020: An Overview

08 JULY 2019

Indian Finance Minister Nirmala Sitharaman presented her maiden Budget for fiscal year 2019-20 on 5th July 2019. After returning with a resounding majority, the government is faced with the task of reviving growth in a period marked by slowing domestic consumption and global trade uncertainties.

In an attempt to boost the financial system, the FM announced support for PSU Banks and NBFCs while proposing to expand RBI’s oversight over NBFCs/HFCs. The Government incentivized purchase of affordable housing and electric vehicles, while continuing its focus on rural welfare schemes providing housing, electricity, cooking gas and roads. The Make in India initiative provided a specific push to MSMEs, start-ups, defense, electronics, batteries and medical devices as well.

Higher proposed FDI limits and easier investment norms in multiple sectors may benefit businesses in the medium term. Ease of doing business, digitization and simplification of procedures continue as prime objectives, while the push to manufacturing may aid job creation. The market expectation of a significant consumption boost did not materialize as the government focused on balancing growth with an eye on fiscal discipline.

Given the soft growth recorded in early FY20, Citi analysts believe the revenue growth assumptions made in the Budget could be difficult to achieve. However, the constrained fiscal stance from the government may open up more space for monetary easing by the RBI, lowering of cost of capital, encourage private investment and initiate a ‘virtuous cycle’. Citi analysts expect the RBI to cut policy repo rate by another 25bps in the August MPC meet, while further cuts remain contingent on growth and inflation data.

In a first, the government proposed to tap foreign markets through overseas bonds – an announcement that sent the 10yr G-sec yields falling to touch 6.56% intraday, before closing at 6.69%. Nifty lost 135 points to close at 11,811 for the day.

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


  • Fiscal deficit is estimated at 3.3% of GDP for FY 2019-20 (vs 3.4% in FY19). The Government targets to bring down the fiscal deficit to 3% of GDP by FY 2020-21
  • Tax revenue is expected to grow by ~17% YoY, to reach 11.7% of GDP in FY20 (vs 11.1% FY19). Non-tax revenue is budgeted to increase to 1.5% of GDP (vs 1.3% FY19)
  • Revenue expenditure is budgeted at 11.6% of GDP (vs 10.6% FY19), while Capital expenditure is budgeted at 1.6% of GDP, reflecting a 6.9% YoY growth
  • GST revenue growth is assumed at ~14% YoY in FY20, averaging ~INR 1.12tn per month (vs average INR 1.04tn recorded in Q1 FY20)
  • Net and gross market borrowing of G-Secs stayed at INR 4.73tn (2.2% of GDP) and INR 7.1tn (3.4% of GDP) in FY20. The government also proposed to raise financing through foreign currency sovereign bonds
  • Divestment revenue target has been increased to INR 1.05tn (INR 840bn in FY19, INR 900bn in interim budget). The government is also considering reducing its stake in certain PSUs to below 51%


  • Overall infrastructure spending by central public sector is budgeted to remain unchanged at 2.4% of GDP
  • Allocation for Pradhan Mantri Gram Sadak Yojna increased by ~23% YoY. Upgradation of 125,000 km of road length planned over 5 years at a cost of INR 802bn (INR 190bn in FY20)


  • Increase in effective tax rate by 3% / 7% for individuals with income above INR 2cr / INR 5cr through application of surcharge
  • Corporate tax rate reduced to 25% from 30% for companies with turnover under INR 400cr, bringing 99.3% of the companies under this tax bracket
  • 20% tax to be levied on share buyback, at par with the Dividend Distribution Tax rate
  • Deduction of up to INR 3.5 lakh (up from INR 2 lakh) allowed on interest paid on loans taken for purchase of homes valued under INR 45 lakh
  • Income tax deduction of up to INR 1.5 lakhs on interest paid on loans to purchase EVs
  • Increase in excise duty + cess on petrol & diesel by INR 1 each, excise duty on cigarettes increased as well
  • Customs duty increased on a slew of items including gold, split A/C and auto components. Customs duty collection estimated to grow ~32% YoY in FY20
  • 2% TDS to be levied on cash withdrawals exceeding INR 1cr in a year from a bank account to incentivize digital payments


  • 100% Foreign Direct Investment (FDI) permitted for insurance intermediaries. The Government also proposed to ease FDI norms for aviation, media and insurance sector and single brand retail (local sourcing norms)
  • Merchant Discount Rate (MDR) can no longer be charged to customers or merchants on digital payments, and will be absorbed by banks/RBI
  • Statutory limit for FII shareholding increased from 24% to align with the sectoral FDI cap. FPIs are now permitted to subscribe to listed debt securities issued by ReITs and InvITs. The government also proposed to merge FPI investment route with NRI portfolio investment route


  • Allocation of INR 700bn made towards public sector bank recapitalization to provide growth capital
  • The government directed SEBI to consider raising the minimum public shareholding threshold from 25% to 35% for all listed companies
  • Government to provide a one-time six-month partial credit guarantee to PSU Banks for first loss up to 10% for purchase of high rated pools of financially sound NBFCs. Further, interest on bad or doubtful debts held by deposit-taking NBFC and systemically important non deposit-taking NBFCs shall be taxed on receipt basis, instead of an accrual basis

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



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