In her seventh consecutive Union Budget presentation, Finance Minister Nirmala Sitharaman may deliver an effective tax rate cut, higher subsidy for cooking gas, interest rate subvention for rural and urban housing, special assistance to states, and wider subsidized healthcare coverage.
“While this may sound like a lot of spending, we don’t see this disturbing overall fiscal math courtesy, the bonanza dividend received by the central govt. from the RBI and other CPSEs. In sum, we expect tax cuts, higher subsidies, special assistance to states, and additional healthcare coverage to cost Rs 1.35-1.5 trillion, to be fully met by higher than budgeted non-tax revenue and still conservative GST collection estimates. Our underlying assumption is of 11% nominal GDP growth rate for FY25,” BofA economist Aastha Gudwani wrote in a note.
While stating that Sitharaman is known to under-promise and over-deliver, the economist said the actual fiscal deficit has turned out to be lower than the budgeted target in the last 4 years and can repeat in FY25 also.
“While the government is likely to announce a 5.1% of GDP fiscal deficit target for FY25, the final outcome may well be lower. Over the last few years, revenue receipts, particularly direct tax revenue collection surprised on the higher side, indicative of improved tax buoyancy. Higher than budgeted non-tax revenue has also played an important role in avoiding any fiscal slippage, despite divestment shortfall,” BofA said.
Govt borrowing
In the Interim Budget, 69.7% of the fiscal deficit was to be funded via market borrowings. “As the absolute fiscal deficit number is unlikely to change much vs the Interim Budget announcement, we do not see any sizable change in the overall G-sec supply,” the brokerage said, adding that the demand-supply for G-sec is expected to stay favorable amidst global bond index inclusion led FPI debt flows.
Capex
The Interim Budget had earmarked Rs 1.3 trillion for ‘special assistance to states for capital investment’, similar to FY24.
“We expect a loan to states to rise by Rs 50,000 crore vs Interim Budget estimate to cater to financial needs of Andhra Pradesh, Bihar & others via a special package. Both these states have asked the Central government to nearly double unconditional long-term loans offered by the government. These states also want more headroom to borrow funds from the market atop the limit set by the union government and RBI,” BofA wrote.
PLI
Another widely expected support measure is to bring back the 15% concessional corporate tax rate for new manufacturing investments.
“We also anticipate expansion of the scope PLI scheme and specific support to target sectors- toys, leather goods. To bolster the ‘Make in India’ push for railways, the Centre may announce a PLI scheme for manufacturing components such as wheels, brakes, and transmission systems,” it said.
