Analysis of Interim Budget 2024

On 1st February 2024, Union Finance Minister Nirmala Sitharaman presented her 6th budget. This being an election year, it was an interim budget. Our broad-level view is that this Union Budget has maintained the Capex-led template to deliver socio-economic growth while maintaining fiscal prudence. While there were several other announcements, the ICICI Direct's Research team has reviewed a few key aspects of the budget in an attempt to dig a little deeper into the budget beyond the basic facts.

Fiscal Deficit

On the fiscal deficit front, the continuation of the fiscal glide path over the next two years is positive. The revised budget estimate for FY24 has dropped to 5.8%, while the budgeted estimate for FY25 has also seen a downward revision to 5.1%. The fiscal deficit and the borrowing estimate were also lower than market expectations at ₹ 14.1 lakh crore vs market expectations, which was around the ₹ 15 lakh crore mark. The Government&rsquo's target to reduce the deficit to 4.5% by FY26 is also on track.

Capex Spending

With a Capex allocation growth of 11.2% YoY for FY25 – taking the infra outlay to ₹ 11.11 lakh crore – this interim budget has built on the capex-led growth template. This capex intensity has been maintained even though capex spending has grown at a CAGR of 20% over FY21-FY25. And the capex to GDP is now pegged at an all-time high of 3.4% in FY25. Key segments like Rails, Roads, and Defence have seen their allocation rise by 3-9% over the already high base, given that FY22-FY24 witnessed double-digit growth in outlay.

Lower Borrowing

The fiscal prudence displayed by the Government, along with the impending Global bond index inclusion, places the Indian debt market in a sweet spot from a demand and supply dynamics perspective. Furthermore, a combination of lower-than-anticipated fiscal deficit and borrowing further boosts the debt market, making it an attractive proposition for banks – particularly PSUs.

Gross Tax Revenue Growth

The FY25 projected gross tax revenue growth stands at 11.5%, with a direct tax growth expectation of 13.0%. This robust growth in direct taxes indicates continued trust in the economy and potentially more disposable income in the hands of individuals. While the Goods and Services Tax (GST) remains a strong contributor, with an expected growth of 11.6% in FY25, its pace is slightly slower compared to the FY24's 12.7%. This could be attributed to factors like maturing of the base and evolving consumption patterns. Interestingly, the excise duty revenue growth is estimated to be a more moderate 5%, reflecting a shift towards a service-driven economy and potentially targeted adjustments in excise rates.

Disinvestment

The Budget 2024 presents a revised disinvestment target for the current fiscal year (FY24RE) of ₹ 30,000 crore, a significant downward adjustment from the previously budgeted ₹ 51,000 crore. This revision suggests a cautious approach amidst market uncertainties and a strategic focus on quality asset sales. While the FY25E target remains steady at ₹ 50,000 crores, it indicates a continued commitment to strategic disinvestment as a means to mobilize resources for government initiatives.

Direct Benefit Transfers

The Budget underscores the government's continued emphasis on "GYAM" – Gareeb (poor), Yuva (youth), Annadata (farmers), and Mahila (women) – by effectively utilizing direct benefit transfers (DBT) to deliver various social welfare schemes. This targeted approach aims to ensure financial assistance reaches intended beneficiaries directly, minimising leakages and maximising impact.

This being an interim budget, the government could not announce any major policy changes or any major scheme like it can during a full budget. The next full budget will only be presented by the next government after the elections are done – and that’s when we can expect major shakeups.

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