Fiscally Prudent Budget :The better distribution of resources in the budget among different sectors of the economy was just like a team can win the World Cup cricket by selecting the best 11. Finance Minister Nirmala Sitharaman has presented this budget for the 7th time keeping in mind India’s vision of a developed India 2047. Despite many obstacles, the central government has continued the path of fiscal prudence with a budgetary fiscal deficit of 4.9 percent of GDP for the financial year 2024-25, which was less than the estimated 5.1 percent at the time of the interim budget in February 2024. Apart from this, RBI dividend of Rs 1 lakh crore was used partly to reduce the fiscal deficit and partly to increase revenue expenditure.
Income tax is expected to increase by 16.1%
With the assumption of nominal GDP growth of 10.5 per cent for FY2024-25, the budget numbers look somewhat conservative. Tax revenue in FY2024-25 is also estimated to grow by 11 per cent from the provisional actual of FY2023-24. Therefore, the consideration of tax hike also looks somewhat conservative. Thus, we can conclude that the budget numbers are reliable. Also, corporate tax is estimated at Rs 10.2 trillion, which shows a growth of 10.5 per cent from the revised estimate of FY2024. Income tax is estimated to grow by 16.1 per cent during FY24RE.
Government revenue will jump
The government has budgeted a revenue of Rs 31.29 trillion and a capital receipt of Rs 780 billion for FY24-25. Apart from this, the total expenditure for the financial year 2024-25 has increased from Rs 47.7 trillion in the interim budget to Rs 48.2 trillion in the full budget. Capex has been limited to the same level as the interim budget at Rs 11.11 trillion, which is a growth of 17 percent compared to FY 2023-24. Also, the fiscal deficit is estimated to come down from Rs 16.8 trillion to Rs 16.1 trillion.
The goal of developed India
The government in its budget has allocated Rs 1.5 trillion as special assistance in the form of loans to the states for capex under the goal of developed India. Apart from this, the government aims to boost agriculture by promoting productivity. The budget has also focused on providing support to manufacturing and services by introducing a credit guarantee scheme for MSMEs and providing credit support during periods of stress.
The central government finances its fiscal deficit primarily by issuing dated securities. The Rs 1 trillion dividend from the RBI helped the government meet its fiscal deficit to some extent. The budget estimates an initial cash balance shortfall of Rs 1.40 trillion.
Duty reduced on gold import
A cut in import duty on gold and silver has been announced in the budget. The current account deficit (CAD) for FY23-24 was recorded at 0.7 per cent of GDP, giving the government confidence to reduce these taxes as the external balance for India appears to be under control. Apart from this, strong services exports are also providing support.
Sovereign rating may be upgraded
The government aims to keep the fiscal deficit below 4.5 per cent in FY26 and a reduction in borrowings could lead to an upgrade of the sovereign rating, as indicated by S&P recently when it upgraded the outlook for the Indian sovereign rating to positive. With its inclusion in global indices, attractive yields, stable macros and strong GDP growth, the Indian bond market remains attractive to foreign investors. This bodes well for the fixed income market in FY25 and beyond.
(Author – Deepak Agarwal, CIO-Debt, Kotak Mahindra AMC)
