Finance Minister Arun Jaitley did not explicitly mention it, but Budget 2019 had a strong hint of the government’s efforts to shift household savings from physical to financial assets. Currently, a staggering 95 per cent savings of an average Indian household comprises physical assets, with the remaining being in the form of financial products. Within physical assets, gold is at the lowest point of wealth distribution and real estate at the highest level. An RBI study on household finances last year observed that if households at the bottom of the pyramid allocated their assets better, it would reduce income and wealth inequality as they earn greater rates of return on assets.
Perhaps bearing this in mind, Jaitley did two things: announcing a comprehensive gold policy to establish gold as an asset class, considering our penchant for the yellow metal; and, he did nothing to stimulate mainstream real estate demand, apparently in a bid not to overheat the market offering sops for property developers, buyers and sellers.
The gold monetisation scheme announced in the past failed to enthuse customers. So it will be revamped to enable opening of hassle-free gold deposit accounts. The government also aims to establish a consumer-friendly and trade-efficient system of gold exchanges. These measures could reposition gold as a financial product with better and safer income returns.
As for real estate, the industry is disappointed with no changes in income tax or GST slabs, translating to zero extra benefits to new home buyers especially in metros. By not reducing the personal income tax slabs, Jaitley is also leaving no extra money in the pockets of the salaried class over last year. Even a reduction in the tax rates could have encouraged customers to pursue property purchase with vigour. However, the Budget had two small consolations. One, the standard deduction of `40,000 enhances purchasing power of the salaried class.
Two, the relaxation of income tax adjustment allowing a five per cent gap between the circle rate and market rate – counted as income in the hands of both buyers and sellers – is timely. Lastly, credit availability, and the move embracing digitalised transactions to provide transparency will benefit organised players.