Interim Budget FY2020: An Overview


Indian Finance Minister presented the Interim Budget for fiscal year 2019-20 today. This pre-election budget aimed at reducing financial burden on the poor, while also introducing some tax relief measures for middle-income groups.

The Government appears to have struck a fine balance between its projected revenues and expenditures and limit the fiscal slippage. The scale of the welfare programs announced was at the lower end of Citi analysts’ expectations, enabling the government to stay close to fiscal targets. The two schemes announced – a rural income distribution scheme for farmers (0.3% of GDP fiscal impact) and exemption of income tax for the lower middle class (0.1% of GDP) – are expected to add to the fiscal deficit burden by 0.4% of GDP as per Citi analysts’ calculations. FY19 fiscal deficit target has been revised marginally up, to 3.4% of GDP (Budget Estimate 3.3%) but meets the FRBM norm of 0.1% of GDP reduction this year. The Government has kept the deficit target for FY20 at 3.4% of GDP, i.e. no change from FY19. The government also reiterated its commitment to meet the target of 3% fiscal deficit by 2020-21.

As per the budget document, the additional expenditures are proposed to be funded through 3 alternative ways – increase in direct tax/GDP (0.2 percentage points), indirect tax/GDP (0.1 percentage points) and an expenditure compression. To achieve the higher revenue collection, the GST growth has been pegged at 18%, which is much higher than what has been achieved so far. FY19 gross borrowing has gone up by ~INR360bn despite higher funding from NSSF(National Small Savings Fund) to the tune of Rs. 1.25trn. FY20 gross borrowing is ~27% higher but mostly because of higher redemption with net borrowing requirement – excluding switch, buyback and short term borrowings – for FY20, remaining similar to FY19’s at INR 4.23tn.

While the announcement of fiscal deficit for FY19 and FY20 at 3.4% of GDP (which is a minor slippage only) saw yields moving down to 7.24%, but the gross borrowing target announcement of INR 7.1tn for FY20 pushed the yields higher. The new 10y bond yield jumped up to 7.38% (~14bp higher from the lows and 10bps higher from previous close of 7.28%). Nifty rose to a high of 10,983 while tax exemptions were being announced, but finally closed the day only 63 points up (+0.58%) at 10,894.

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


  • Fiscal deficit target for year 2018-19 was revised to 3.4% of GDP, from the earlier guidance of 3.3%. For 2019-20 fiscal deficit target was also kept at 3.4% with a commitment to reach 3% by 2020-21.
  • Total expenditure rises from Rs. 24,57,235 crore in 2018-19 Revised Estimates to Rs. 27,84,200 crore in 2019-20 Budget Estimates, a rise of approximately 13.30%.
  • The Government reiterated its confidence in crossing the divestment target of Rs. 80,000 crore this year.


  • Capital Expenditure for 2019-20 in the Budget Estimate is estimated to be Rs. 3,36,292 crore against Rs. 3,16,623 for 2018-19 revised estimate, a growth of ~6%.
  • Capital support from the budget for railways is proposed at Rs. 64,587 crore in 2019-20 (BE). The Railways’ overall capital expenditure program is of Rs. 1,58,658 crore for 2019-20.


  • Income support of Rs. 6,000 per year to be provided to vulnerable landholding farmer families, having cultivable land upto 2 hectares. Program cost estimated at Rs. 20,000 crores for 2018-19 and Rs. 75,000 crore for 2019-20.
  • Rs. 60,000 crores allocated for MNREGA in BE 2019-20.
  • Monthly pension of Rs. 3,000 to be paid from the age of 60 years to workers with monthly income upto Rs. 15,000. Program to cost
    Rs. 500 crores.
  • Rs. 19,000 crore allocated for 2019-20 as against Rs. 15,500 crore in 2018-19 towards Pradhan Mantri Gram Sadak Yojana (PMGSY).
  • 2% interest subvention on Kisan Credit Card loans for farmers pursuing animal husbandry and fisheries, an additional 3% waiver given in case of timely loan repayment.


  • Individual taxpayers having net taxable annual income up to Rs. 5 lakhs will get full tax rebate.
  • Standard Deduction for salaries individuals raised from Rs. 40,000 to Rs. 50,000.
  • TDS exemption threshold on interest earned on bank/post office deposits raised from Rs. 10,000 to Rs. 40,000.
  • TDS threshold for deduction of tax on rent was increased from Rs. 1,80,000 to Rs. 2,40,000. Exemption on notional rent received on a second self-occupied house.
  • Home owners can claim exemption from tax on capital gains from sale of a residential house property, if the proceeds are invested in two subsequent residential properties, instead of one previously.


  • Defence budget allocation to be more than Rs. 3,00,000 crore for the first time in 2019-20.
  • Allocation for National Education Mission increased from Rs. 32,334 crore in RE 2018-19 to Rs. 38,572 crore in BE 2019-20.

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



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