The Union Budget for FY2024 has struck a commendable balance between enhancing growth-supportive spending and fiscal consolidation. As expected, the FY2023 fiscal deficit was maintained at 6.4% of GDP in the Revised Estimates (RE), with an absolute overshoot being absorbed by the higher nominal GDP. The deficit has been pared to 5.9% of GDP in the FY2024 Budget Estimates (BE). This benefits in great measure from the relief offered by lower subsidies, which have contained the Government of India’s (GoI’s) revenue expenditure growth at a muted 1.2% in FY2024 BE.
Simultaneously, the FY2024 Budget has enlarged the GoI’s capex by a massive 37%, dominated by higher allocations for roads, railways and the interest-free capex loan for the states. The offtake of the latter was tardy in H1 FY2023, which may have been on account of the initial concerns regarding their revenue health post the end of GST compensation. The efficacy of the enhanced allocation for this loan will ultimately depend on how quickly the states utilise these funds.
Also read: Railway Budget 2023 Live Updates: Railway gets capital outlay of Rs 2.40 lakh crore, opportunities for more private investment
Moreover, with the effective capital expenditure (including grants-in-aid for creation of capital assets to the states) rising to 4.5% of GDP in FY2024 from 3.9% in FY2023, the quality of the fiscal deficit has improved significantly.
Based on the available anticipated commissioning dates for the outstanding central sector infrastructure projects as per the data released by MOSPI, the pipeline of infrastructure projects that is scheduled to be completed in FY2024 is massive at ~` 7.4 trillion, with the road transport and highways and railways accounting for nearly 40% of this amount. The sharp increase in allocation for these segments is expected to enable the GoI to push project completions, thereby supporting India’s GDP growth amidst global headwinds.
In our view, the estimates for revenue receipts and disinvestment for FY2024 appear mildly optimistic. Based on a nominal GDP growth projection of 10% for FY2024, we had pencilled in a slightly lower rise in gross tax revenues, partly on account of the overhang of the excise duty cuts effected in May 2022.
Overall, the fiscal deficit target and the gross market borrowings of the GoI in the FY2024 BE are around `0.5 trillion higher than our projection. The net market borrowings are equivalent to 66% of the fiscal deficit, with the higher dependence on small savings to benefit from the increased limits for some schemes.
While the GoI has not explicitly articulated its medium-term fiscal projections, it has reiterated the target of curtailing the fiscal deficit to below 4.5% of GDP by FY2026. It has articulated its fiscal priorities for FY2024 – higher capex to sustain infra development, support states’ capital spending and prioritise developmental expenditure.