The 2024 Budget is a vote on account Budget, implying limited parliamentary discussion and hence an avoidance to tax modification at large. The primary objective is to seek permission to spend and collect receipts until the new government is formed. The underlying theme was clearly fiscal consolidation with an ability to maintain the infrastructure spends at the existing run rate.
The pace of fiscal consolidation took everyone by surprise. Despite FY24 being a pre-election year, and despite FY24 nominal GDP growth coming in lower than budgeted (10.5% y-o-y vs. 8.9%), the government plans to end the year with lower than budgeted fiscal deficit (RE at 5.8% vs. BE of 5.9% of GDP) and consolidate it to 5.1% of GDP in FY25. It lends credibility to their FY26 fiscal deficit target of 4.5%.
Nominal growth is projected at 11%, which looks slightly optimistic but overall receipts are projected to grow by a reasonable 11.8% versus RE of 12.2% for FY24.
The Central government’s total expenditure, budgeted to grow at 6.1% versus a likely 7.1% in FY24, is lower than India’s nominal growth. In fact, adjusting the interest outgo, fiscal impulse reduces further. Optically, capital expenditure via budgetary support appears to be improving from ₹9.5 trillion in FY24 RE to ₹11.1 trillion in FY25 (capex to GDP at 3.4% is the highest since FY05). However, if one were to look at key infrastructure-oriented sectors (roads, railways, water, defence, and metros), most of them show a low single digit growth in the FY25 capex spend. It appears that a large part of capex is directed towards loan and equity infusion (BSNL being one case).
With the lone exception of rural housing (FY25 budgeted spend at ₹545 billion versus ₹320 billion in FY24), allocation for most of the key rural schemes is largely flat in FY25. There is a hope to reduce subsidy outgo too, which, in the end, would be contingent on the evolution of commodity prices through FY25.
As the 14% SGST revenue growth guarantee ends and FY25 entails no maturity of GST loan, the Centre has decided to utilise a part of GST cess collection (₹1.23 trillion) to pay for some regular G-secs maturing in FY25, thereby helping reduce the gross G-sec supply in FY25.
Gross borrowing is markedly lower in FY25 at ₹14.1 trillion versus ₹15.4 trillion in FY24. As per our calculation, the actual net market borrowing in FY25 falls to ₹10.5 trillion versus ₹11 trillion in FY24.
We compare the colour of Centrally sponsored schemes of the government during its first and second term. While the government’s first term focussed on Swachh Bharat, crop insurance, rural roads and housing, allocation towards MGNREGA, Awas Yojana, and the National Rural Drinking Water Mission was scaled up substantially in the second term. PM Kisan was introduced just ahead of the second term. Ayushman Bharat (public health insurance), Anganwadi 2 and few of the new agri-oriented schemes were also introduced in the second term. Rural electricity, and women are likely to be the focus areas in the coming years.
Namrata Mittal is the Chief Economist, SBI Mutual Fund
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