Budget 2024 Expectations: No big-bang measures likely; govt’s priority would be to achieve fiscal discipline, say economists

With the Finance Minister Nirmala Sitharaman all set to present the interim Budget for the fiscal year 2024-25 on February 1, 2024, economists said that despite it being a vote on account, the government will continue with thrust on fiscal consolidation, easements of business and taxation laws, infrastructure, MSMEs, and financial inclusion. Suman Chowdhury, Chief Economist and Head-Research, Acuité Ratings & Research, said, “Given the priority that is likely to be given for fiscal consolidation in the upcoming budget, we don’t expect any significant fiscal stimulus in it. However, the government may continue to earmark a significant quantum for capital expenditure with a growth of 15 per cent in its budgetary allocation; the latter will continue to be a primary driver of the domestic economy over the medium term.”

Economists opined that the government is most likely to continue with the large number of measures around the previous budgets to sustain economic growth and create employment opportunities.

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Here is what economists and experts are expecting from the interim Budget…

Suman Chowdhury, Chief Economist and Head-Research, Acuité Ratings & Research

We expect the Indian economy to witness a moderation in growth in FY25. Our current forecast for FY25 stands at 6.3% as compared to 6.8% in FY24. Given the priority that is likely to be given for fiscal consolidation in the upcoming budget, we don’t expect any significant fiscal stimulus in it. However, the government may continue to earmark a significant quantum for capital expenditure with a growth of 15% in its budgetary allocation; the latter will continue to be a primary driver of the domestic economy over the medium term. The government may also enhance the subsidy allocation for some segments such as farmers, women, informal sector workers and unemployed youth to strengthen domestic private consumption which is estimated to show a weak growth of 4.4% in FY24. Given the need to sustain the public investments and also support certain social segments through subsidies or budgetary relief, the targeted reduction of fiscal deficit from 5.9% to 5.3% (E) will pose a material challenge for the finance ministry, necessitating significant step-up in non-tax revenues like PSU disinvestments.

The macro fundamentals remain strong and resilient and this is borne out by the GDP figures so far in the current year despite headwinds like the global slowdown, higher interest rates and the El Nino phenomenon. However, the policymakers need to take remedial measures to revive the weak rural demand scenario if agricultural growth doesn’t recover quickly.”

Ashwajit Singh, Managing Director, IPE Global

Being an interim budget, the government is expected to continue with the large number measures around in the previous budgets to sustain economic growth and create employment opportunities. Continuing to focus on the promise of inclusive and long-term growth, the budget is expected to address both the needs of the vulnerable sections of the society while also continuing with reforms for ease of doing business, promoting ‘Make in India’ innovation, and pushing up private investments. Budget 2024 presents an opportunity to build confidence and attract investment and for a Viksit Bharat – to transform the nation into a developed entity by the centenary of our independence in 2047.

Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services

There is a high level of uncertainty about the possible proposals in the interim budget. The finance minister had gone on record stating that “there won’t be any spectacular announcements” in the interim budget. So it is most likely to be a vote on account plus some possible relief in income tax for the lower income tax slabs. Major public capex is unlikely since the FM has to achieve the fiscal deficit target of 5.9 per cent for FY24 targeted in the 2023 budget. Also the massive public expenditure done through the budget provision last year has helped in triggering growth in the Indian economy. Therefore, the government’s priority would be to achieve fiscal discipline.

Rahul Ahluwalia, Co-founder, Foundation for Economic Development

India’s path to growth lies in prioritising exports to global markets, which are vast compared to the domestic Indian market. The government’s ambitious target of exporting goods and services worth $2 trillion by 2030, and the spectacular growth of electronics exports last year inspire confidence that policy-wise, we have the right targets in mind. However, till October ’23, India’s overall merchandise exports had declined by 5.5% year-on-year. High tariffs on imports result in costlier inputs and reduces the competitiveness of downstream Indian exports in international markets. Since this will be a vote on account or an interim budget before the general elections, it is unlikely to have any big announcements. Still, reductions of import duties are well within its ambit. Given the government’s focus on exports, we think that the budget will reduce tariffs to foster competitiveness and enable Indian industry to thrive globally.

Aditi Nayar, Chief Economist and Head – Research and Outreach, ICRA

With the upcoming Union Budget for 2024-25 set to be an interim one for the purpose of a vote-on-account, major policy changes and announcements are unlikely. However, the expansion in the Government of India’s (GoI’s) capex and the extent of fiscal consolidation would be scrutinised closely, given the implications for growth and G-sec yields, respectively. 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. This, along with our projection of an appreciable dip in the revenue deficit, would allow for a capex target of Rs 10.2 trillion for FY 2025, 10% higher than the expected level for FY2024 vis-à-vis the 20%-plus YoY expansion seen during FY2021-FY2024. A higher capex target would impinge on the GoI’s ability to bridge half the required fiscal consolidation in FY2025, thereby making the task of reaching medium-term fiscal deficit target by FY2026 even more challenging.

Suraj Pratap Malik, Whole-Time Director, Infomerics Ratings

This is a budget with a difference since it is a ‘Vote on Account’. India has been the fastest-growing major economy for the third successive year. We are confident that India’s high growth is here to stay because of a renewed capex cycle, a well-capitalized banking system, robust credit growth, the surging housing sector, rising domestic consumption, robust investment, growing services exports, and “digitalization-driven productivity gains”. No big-bang measures are likely. But there could be an accent on fiscal prudence, greater capex, higher infrastructure allocation, and stress on PPP arrangements. Some pro-farmer measures, new initiatives to boost manufacturing, expansion of the PLI scheme, Make in India, ease of doing business, MSMEs, thrust on infrastructure, no income tax rebate, inclusion of a waiver of tax collected at source (TCS) on individual overseas credit and debit card expenditures up to Rs 7 lakh per year are likely. There could also be some measures relating to enhanced deduction under the individual policy and senior citizen, climate concern, green growth and ESG, and incentivizing start-ups.

The banking and finance sector could be given an impetus by greater integration of new technologies, attracting more foreign investments, enhancing digital skills, creating productive employment, providing additional incentives for women borrowers, support for smaller sectors like MSMEs and microfinance, stronger regulatory framework for fintech industry and higher loan-to-value (LTV) ratios in identified areas. No major direct and indirect tax change is expected.