Income tax, bank recap, Air India, and 5G spectrum sale are some things to watch out for in Finance Minister Nirmala Sitharaman's first budget speech

• Millions of Indians are looking for changes in income tax slabs hoping for more disposable income.
• Finance Minister Nirmala Sitharaman's budget speech will be a tightrope walk that will have to blend the hopes of an economy slipping into slumber with the reality of limited resources.
• Disinvestment in Air India and 5G spectrum sale could be the big money spinners for the goverment allowing it to spend freely in reviving a distressed rural economy.

Finance minister Nirmala Sitharaman will present her maiden Budget and millions of Indians will be keenly watching if she fulfills many of the promises made by the Prime Minister Narendra Modi during his poll campaign that ended in the historic mandate. Millions of middle class Indians are hoping for tax breaks or rebates that will leave more money at their disposal at month end. But, the budget speech will hold a lot more of significance than just a change in income tax slabs.

The lady in charge

Sitharaman is India's first full-time Finance Minister to deliver the budget speech at 11 am. The Modi government has kicked off the second term with the promise of making Indian economy worth $5 trillion by March 2025. The narrative set by the Prime Minister himself has been followed by many of his team members as well as the newly-appointed Chief Economic Advisor K Subramanian.

Some of the issues that the government has not been able to overcome in the recent past are the lack of jobs, the escalating rural distress, bone-dry private investment, and falling consumption. It is widely expected that the government will try to revive the economy's animal spirits-- a term used to describe people's level of confidence in the economy-- which will be essential to the lift the growth in Gross Domestic Product (GDP) from the five year low it hit in the January-March 2019 quarter.

The right signals

Budget 2019 offers an opportunity for the government to inspire confidence among the country's private investors who have shied away from betting their money on the country's economic prospects. That has led to a rise in unemployment as millions of young Indians join the workforce every year and there just aren't enough jobs created. That in turn has affected consumption.

The two biggest numbers that are key to deciding the market confidence are the fiscal deficit projection for 2019-20 and the government borrowing programme. Fiscal deficit is the difference between the amount of money the government makes and the amount spent. The government had said in February that in 2018-19, the deficit would be 3.4% of the GDP. The fiscal deficit target for 2019-20 will decide whether the government takes its targets seriously.

The excess of expenditure over earnings, the deficit, is met by borrowing money from the market.

"From an investor point of view we want RBI, which is adeauately capitalised, and we want an economy which is adequately liquid. Today, apart from liquidity it is also transmission of credit which is also important. Today we have a scenario where PSU banks are not lending because they are not adequately capitalised," Nilesh Shah of Kotak Asset Management told Business Insider.

Bank recapitalisation

And that is one of the most significant numbers to look forward to in Sitharaman's speech-- the amount of money that the government will invest in state-owned banks that have been squeezed by a pile of bad loans threatening to rise further. In the last financial year ending March, the government invested a total of ₹1 lakh crore, according to Financial Services Secretary Rajiv Kumar in February.

Still, there still isn't enough money floating around in the economy. "As a matter of fact if you look at the 50 year chart, the money supply has grown in the last few years at the same rate as it used to grow in the 1960s when the economy used to grow at 3-4%," market veteran Vallabh Bhanshali, Chairman of the Enam Group, told Business Insider.

Banks need money (and confidence) to lend more and they are looking towards the government for support.

Demands galore

Essentially, everyone from the individual taxpayer to different industry segments-- from farmers to industrialists, from manufacturers to retailers, from real estate developers to banks to home buyers, from car makers to car buyers--- needs some kind of government support. Where is the money going to come from?

Disinvestment

One way of making up for the shortfall is for the government to sell stake, or fully priavatise, in companies that it owns.

All eyes are on the hoardes of sick government companies that are sitting on millions of assets that are under-utilised and therefore, the companies are turning in losses for years. The most high-profile of them is Air India. The government has already indicated that it is looking for a strategic private investor in the airline.

Government-owned telecom operators BSNL and MTNL are two other companies that have run out of cash even to pay salaries.

Spectrum sale

The other big source of government revenue is the sale of spectrum, which yields a lot of money. The government would want the upcoming auction of 5G spectrum to be a big money spinner but the bidders, the telecom operators are buried in debt.

While the government would want 5G to give impetus to its Digital India programme, the 5G spectrum has to be reasonably priced.

The Budget on the whole will be a tightrope walk.


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