'Walked the path of fiscal prudence’ — what economists say about interim budget 2024’s fiscal maths

Budget News: India's finance ministry targets reducing the fiscal deficit to 4.5 percent by FY26. Analysts anticipate Sitharaman to uphold the government's focus o

Budget Announcements: The Indian government plans to borrow 14.13 trillion rupees ($170.36 billion) in the next fiscal year, lower than economists' estimates, according to Finance Minister Nirmala Sitharaman. Net borrowings are expected to remain largely unchanged from the current fiscal year, at 11.75 trillion rupees. The funds will be used to finance a fiscal deficit of 5.1% of GDP, with the government also conducting switch auctions worth 1 trillion rupees. Additionally, 4.66 trillion rupees will be raised through India's small savings fund to cover the budget gap.

Union Budget 2024: India's finance ministry, led by Nirmala Sitharaman, is focusing on fiscal prudence to reduce the fiscal deficit to 4.5% by FY26. The government's focus on infrastructure spending is expected to continue, as high hopes of re-election in April-May 2024 have allowed the government to control populist measures. The Indian economy is expected to grow at 7.3% in the current financial year

Budget 2024: The Indian government is expected to have more funds for farmers and social sector schemes in the upcoming interim budget, thanks to increased tax buoyancy. The focus will be on addressing issues faced by poorer sections, particularly in rural areas. Income tax and GST collections have been strong, with the total direct tax mop-up likely to exceed budget estimates by about Rs 1 lakh crore. However, there may be a shortfall in excise and customs duties collections.

Interim Budget: Prime Minister Narendra Modi will likely use the last budget of the present government before the elections to woo voters with new spending measures, while avoiding a fiscal deficit increase. The economys rapid expansion has led to a tax windfall for the government, helping it meet its goals of curbing the deficit. Finance Minister Nirmala Sitharaman, who will deliver her sixth budget speech on Feb. 1, has scope to keep infrastructure spending going and take targeted steps to support Modis priority sectors for the elections: farmers, women, the poor, and young people.

India's fiscal deficit for the last financial year ending March 31 met New Delhi's target and narrowed to 6.4% from the previous year, thanks to strong tax receipts and lower payments. The government expects the deficit to further reduce to 5.9% next year and aims to bring it under 4.5% of GDP by 2025-26.

In terms of priorities, the interim budget has continued its focus on raising capital expenditure - the type of expenditure which creates assets (think railways, roads, housing) - at a faster pace compared to revenue expenditure (which is essentially spent on salaries, interest payments, pensions, etc). This strategy has been adopted since the pandemic as the government introduced supply-side reforms to support growth by building economic infrastructure. Since FY21, capex has grown close to 30% on average per annum, compared to 11% growth in revenue expenditure.

Finance minister Nirmala Sitharaman presented 2024-25 Interim Budget for 58 minutes on Thursday, her shortest-ever speech so far. With India going for the Lok Sabha elections in three months, the FM made no major announcements, including no changes in the income tax rates.

Interim Budget 2024: Amar Ambani, Executive Director, Yes Securities expect the government to continue with its agenda of boosting capex as a percentage of total expenditure. Also he foresees non-government enterprises incrementally cajoled through incentives to help lift the private capex cycle

With limited fiscal concerns and the end of monetary policy tightening in sight by the RBI as well as the US Fed, ICRA expects the 10-year G-sec yield to trade between 7.25-7.50% in H1 FY24, Nayar said. The 10-year G-sec yield was quoted at 7.3% on Friday.