As the Union Budget would be an interim one in an election year, Finance Minister Nirmala Sithraman has already ruled out making any “spectacular announcements” on February 1. However, just like how the last 2019 Interim Budget had turned out to be, this one too could have significant, if not spectacular, outcomes for investors.
“It is a crucial event, and expectations are high. Key areas of focus could include tax relief measures to boost consumption and investment, especially for salaried individuals and MSMEs. Increased allocation for infrastructure projects is anticipated, which would create jobs and stimulate economic growth. The Budget could set the tone for market sentiment and economic direction for the year,” said Sonam Srivastava, smallcase Manager & Founder of Wright Research.
Since it is an interim budget, the government is likely to continue with manufacturing incentives, support infrastructure-related capex in the country, and lay out a plan for disinvestments.
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Till the Budget, which is going to be a vote on account, sectors like railways, defence, infrastructure, power, renewables, auto, manufacturing, real estate, etc will continue to remain under focus.
Key things investors should watch out for in Budget 2024:
1) Tax
While reduction in income tax rate looks difficult due to fiscal constraints, taxpayers expect some populist announcements like increase in the basic exemption & house rent allowance exemption under both new and old regimes. There might even be some fine-tunings made in the income tax structure to make the new regime the preferred route of taxation, to simplify the tax regime, Srikanth Subramanian, CEO, Kotak Cherry, said.
2) Capex
The government has focused on raising capex spending by over 30% CAGR
over the last three years, raising the budgeted capex target to 3.3% of GDP, the highest in 18 years. “They will likely meet the capex target in FY24, given the upside from gross tax revenues. However, we expect capex growth to decline to around 10% YoY in FY25 (over our revised estimate for FY24), given the medium-term fiscal consolidation path of the government,” Goldman Sachs said.
Deutsche Bank expects on-budget capital expenditure of Rs 11 lakh crore for FY25 vs Rs 10 lakh crore in FY24.
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3) Fiscal deficit target
ICRA expects the fiscal deficit target for FY2025 to be set at 5.3% of GDP, midway through the expected print of 6.0% for FY2024 and the medium-term target of sub-4.5% by FY2026.
As per ICRA’s estimates, every 10 bps of expansion in the fiscal deficit-to-GDP ratio would allow for an additional capex of Rs 324 billion.
Goldman expects the government to meet the FY24 fiscal deficit target of 5.9% of GDP.
5) Market borrowings
With adequate demand for government bonds from FIIs and domestic
investors in a policy rate easing cycle (rate cuts are expected in FY25), Goldman analysts believe the RBI may be a net seller of government bonds in FY25.
“We expect the overall issuance for the Centre and state governments in FY25 to be around Rs 17 – 18 trillion. To fund the central government’s fiscal deficit of nearly Rs 18 trillion in FY25, we estimate net borrowing of around Rs 12 trillion, after accounting for non-market financing from small savings, state provident funds etc. For the state governments, we assume 70% of the fiscal deficit in FY25 (2.5% of GDP) to be financed by market loans. This translates to state net borrowing of Rs 5.8 trillion in FY25,” Goldman said.
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(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)
