Emkay Global thinks that the Budget 2024 will continue the same policies as recent budgets. The main focus will be on finding a way to help the economy grow while also managing the government’s money carefully. The budget includes help for the countryside, farming, and people in need. This way of doing things shows that we want to help these important areas while also being careful with money as we recover from the economy.
3 min read 2024-01-23, 08:10 PM IST
Highlight of the Story
- Interim Budget Overview: The upcoming Union budget for FY25, scheduled for February 1, 2024, is expected to be an interim budget. Due to its interim nature, significant announcements on new taxes or spending proposals are unlikely.
- Role of Interim Budget: Interim budgets serve as a transitional measure, managing fiscal accounts until the new government presents the complete budget. Typically, they refrain from making significant policy statements but include evaluations of fiscal revenues, outlays, and projections.
- Policy Direction and Priorities: Emkay Global anticipates continuity in policy direction, with a focus on balancing growth recovery and fiscal constraints. The evolving intersection of politics and economics suggests a less compromised political capital around election cycles.
- Relief Measures: While competitive populism at the central level is considered less likely, relief measures for the rural, agricultural, and welfare sectors are expected.
- Fiscal Projections for FY25: Emkay Global projects the FY25 Gross Fiscal Deficit (GFD) to Gross Domestic Product (GDP) ratio at 5.4%, with net and gross borrowing at significant amounts. Net borrowing is expected to constitute 65% of fiscal funding, with small savings likely funding 25% of the GFD.
- Balancing Act in Fiscal Policy: Policymakers face the delicate task of maximizing fiscal stimulus while aiming for consolidation to balance debt sustainability and development momentum.
- Political Environment and Policy Shifts: Emkay Global’s research indicates a decline in the pro-cyclical inclination of policymakers throughout election cycles. The brokerage excludes the possibility of aggressive, competing populism in the upcoming interim budget.
The upcoming Union budget for the financial year 2025 (FY25), scheduled to be presented on February 1, 2024, is expected to be an interim one. Given its interim nature, it is unlikely to include significant announcements on new taxes or spending proposals. Brokerage Emkay Global Financial Services predicts that despite this limitation, the budget will play a crucial role in setting the stage for future policy decisions, offering insights into the rate of fiscal consolidation and priorities on capital and non-capital expenditure spending.
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Interim Budget Dynamics
Interim budgets, in theory, serve as a vote on account, managing the fiscal accounts of the outgoing administration and requesting permission for necessary spending outlays until the new government presents the complete budget. Due to their transitional nature, interim budgets typically refrain from making significant policy statements. However, they encompass evaluations of fiscal revenues, outlays, and projections for the upcoming year.
Policy Direction and Priorities
Emkay Global anticipates that the policy direction and prerogatives in the interim budget will align largely with recent budgets, considering the ongoing trade-offs between nurturing growth recovery and navigating fiscal constraints. The brokerage notes the evolving intersection of politics and economics, suggesting that political capital is no longer as compromised around election cycles as previously perceived.
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Potential Relief Measures
While competitive populism at the central level is deemed less likely, Emkay Global expects some relief measures for the rural, agricultural, and welfare sectors. Despite the challenges, the brokerage foresees an improvement in the capex/revex ratio, projecting a capex/GDP of 3.3%. Despite slowing tax growth, the gross tax to GDP ratio is expected to remain stable at 11.4%.
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Fiscal Projections for FY25
Emkay Global projects the Fiscal Year 2025 (FY25) Gross Fiscal Deficit (GFD) to Gross Domestic Product (GDP) ratio at 5.4%, following 5.9% in FY24. This implies net and gross borrowing at significant amounts of ₹11.5 trillion and ₹15.2 trillion, respectively. The brokerage predicts that net borrowing will constitute 65% of fiscal funding, with small savings likely funding 25% of the GFD (compared to 27% in FY24).
Balancing Act in Fiscal Policy
The brokerage’s assessment suggests that markets will closely scrutinize the headline objective when evaluating the fiscal policy position. Policymakers face the delicate task of maximizing fiscal stimulus while aiming for consolidation, acknowledging the challenging decision to balance future debt sustainability and development momentum. The evolving policy challenges, though somewhat different from the previous year, still involve considerations of the pre-election year populist bias.
Political Environment and Policy Shifts
In the past, NDA-I declared fiscal perks and concessions for the agriculture industry and weaker economic sectors in the interim budget for February 2019. However, Emkay Global’s latest research indicates a decline in the pro-cyclical inclination of policymakers throughout election cycles, suggesting a shift in the political environment. The brokerage, therefore, excludes the possibility of aggressive, competing populism in the upcoming interim budget.
As the Union budget for FY25 takes on an interim nature, it serves as a pivotal moment in shaping future policy decisions. While constraints on significant announcements exist, the budget is expected to offer a glimpse into the government’s fiscal priorities and strategies. Emkay Global’s analysis provides valuable insights into potential relief measures, fiscal projections, and the broader dynamics influencing the fiscal policy landscape for the upcoming financial year.