Union Interim Budget - Feb 02, 2024

Executive Summary

It is with pleasure that we share our analysis of the interim Union Budget for FY25.

It may be tempting to term such an interim budget as a non-event, given the absence of major policy announcements. But in our opinion, the Government has done well in focussing its communication on four key themes which are likely to ensure sustainable growth and a stable macroeconomic framework over the next five years. These key themes are: (i) fiscal consolidation (ii) stronger support and additional programmes for the economically weaker sections (iii) continuing emphasis on infrastructure development and (iv) fresh programmes to meet the green and sustainable development goals.

The target for fiscal consolidation has been set tighter for FY25 than our expectations; at 5.1% of GDP, it is slightly ambitious in our opinion. With the expected moderation in GDP growth in the next few quarters, there is a likelihood of a more moderate tax revenue growth and the dependence on non-tax revenues like disinvestment will be clearly higher. From a positive perspective, the likelihood of high ticket disinvestments has significantly increased for the next fiscal if the current government is reinstated back to power.

Notwithstanding the robust economic growth in FY24, there is still a fragility in private consumption with only a modest 4.4% growth estimated by NSO. The data on FMCG volumes suggest that rural demand has been the key factor constraining the overall demand. The government has expectedly, enhanced the allocation on MNREGA from Rs 60,000 Cr to Rs 86,000 Cr for the current and the next fiscal. Under PM Awas Yojana (Rural), 2 Cr more houses are expected to be constructed beyond the initial target of 3 Cr houses; FM also announced a new housing scheme for the lower income urban population who stays in rented houses or slums. On the agriculture and allied sector front, there has been an emphasis on seafood exports and improving productivity in dairy sector which will raise rural incomes.

Not surprisingly, the public capital expenditure target has been raised further to Rs 11.1 Lakh Cr from Rs 9.5 Lakh Cr (RE) which translates to a growth of 16.9%. The allocation for railways is set to increase sizeably with the proposed implementation of three major economic corridors under PM Gati Shakti which will improve logistics efficiency. Further, a large upgradation plan for 40,000 rail coaches has also been announced.

On the green financing front, viability gap funding for offshore wind projects of upto 1 GW has been proposed. Coal gasification projects upto 100 million tons has been specified which will be possibly implemented by the PSUs and will help to reduce the direct usage of coal. Further, it is proposed to blend compressed biogas (CBG) in CNG and PNG in a phased manner; financial support will be provided for procurement of biomass aggregation machinery – these indicate the commitment of the government to scale up the nascent biomass energy sector.

Contrary to media expectations, the interim budget didn’t provide any tax relief or concessions. In our opinion, such concessions are unlikely even in the post-election full budget exercise given the fiscal constraints and the criticality of fiscal consolidation.

Suman Chowdhury
Chief Economist & Head of Research, Acuité Ratings & Research