Budget 2024: Few big announcements expected, focus on fiscal consolidation

Interim Budget 2024: The forthcoming interim budget is expected to refrain from major announcements but will be closely monitored for insights into the pace of fiscal consolidation and policy priorities, brokerage firm Emkay said in a report.

While the challenging economic trade-offs persist with a diminishing fiscal impulse for growth, expectations are that policy directions and spirit will remain intact.

Analysts at Emkay predict a few relief measures for the rural, farming and welfare sectors, stressing on improvement in the capital expenditure (capex)/ revenue expenditure (revex) mix with capex to GDP projected at 3.3 per cent. The gross tax to gross domestic product (GDP) ratio is expected to remains stable at 11.4 per cent, despite a slowdown in tax growth.

With the interim budget being a non-event in terms of groundbreaking proposals or new fiscal measures, it is still deemed a crucial policy signalling tool that sets the tone for future policy choices. The focus is expected to centre around fiscal consolidation, capex, and non-capex spending priorities, analysts said.

The trajectory is anticipated to align with recent budget trends, considering the delicate balance between fostering economic recovery and managing limited fiscal space amidst challenging debt dynamics, Emkay noted.

FY25 fiscal outlook

The fiscal outlook for financial year 2024-25 points towards a tightening of gross fiscal deficit to GDP ratio of 5.4 per cent compared to 5.9 per cent in FY24, indicating net and gross borrowing at approximately Rs 11.5 lakh crore and Rs 15.2 lakh crore, respectively, Emkay pointed.

Despite a potential decrease in tax revenue growth and substantial market borrowings, small savings are anticipated to fund a significant portion of the gross fiscal deficit (GFD). Analysts caution against overly populist measures, given the prevailing fiscal constraints and the interim nature of the budget.

The asset sale print is projected to remain below Rs 50,000 crore, while the RBI dividend will be closely scrutinised.

In terms of capex to GDP, the ratio is expected to rise to 3.3 per cent, demonstrating a continued focus on capital expenditure, especially in sectors like roads, railways, housing and rural/urban infrastructure.

The capex/revex mix is likely to improve, with a concentration on welfare, rural, and MSME spending. The allocation for subsidies may hover around Rs 4 lakh crore, with adjustments in fertilisers and oil subsidy outlays.

While the buoyancy in gross tax to GDP ratio is anticipated to persist at 11.4 per cent, there may not be significant announcements for tax mobilisation and rationalisation. Non-tax revenue streams, including the RBI dividend, are expected to remain healthy but might not match the surplus levels observed in the previous year. Conventional divestment gains may face pressure due to stake sales in government-held entities, particularly in commodity companies and the utilities sector, Emkay said.

The reliance on the National Small Savings Fund (NSSF) is expected to continue, constituting over 25 per cent of the GFD. Gross borrowing is estimated at approximately Rs 15.2 lakh crore, factoring in specific assumptions regarding government securities (G-Sec) papers redemption and reinvestment by the RBI.