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  1. Populist measures with an eye on upcoming elections
    • Direct cash transfer to farmers – retrospectively from December 2018. Estimated to cost 75k per year and this year’s budget allocation, up to 20k crores also provided.
    • Middle-class tax benefits
      • No tax up to 5 lacs of income
      • Standard deduction increased to 50k from 40k
      • Notional rent on the second self-occupied house eliminated
      • TDS threshold on FD income increased from 10k to 40k
    • Pension scheme for the unorganized sector
  2. Fiscal deficit estimated at 3.4% for this FY. While the numbers have to be looked into carefully given the large expenditures planned, this number should fine for the markets. Next FY fiscal deficit target at 3.4%.
  3. Markets reacted mixed
    • Equities are up by more than 1% – primarily since the budget would boost consumption
    • Bond yields jumped 12 bp due to the minor fiscal slippage – but not significant and we expect that they would drift back a bit lower once RBI policy is announced
    • INR appreciated by 20 paise before retracing the entire move back to 71.20 levels

4. Overall, this budget is fairly positive for INR in the medium term as the sops given to the middle class and farmers can increase the chance of a return of BJP government. It is again back to global factors for INR in the next month.

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