Near-term macro impact of free foodgrain scheme muted, adds to medium-term risks: Nomura

Prime Minister Narendra Modi said on Saturday that his government would extend a welfare scheme, which provides free grain to more than 800 million people and was due to end in December, by five years. The move aims to shield consumers from the rising prices of cereals ahead of a general election early next year, but could lead to higher government spending and require New Delhi to procure more wheat and rice from farmers to sustain the scheme.

Budget News: The upcoming Union Budget for 2024 is expected to have implications for investors, with a focus on tax relief measures, capital expenditure, fiscal deficit, subsidies, and market borrowings. Find out the key factors investors should watch out for in Budget 2024.

The government aims to limit the increase in overall spending to around 10% in the interim budget for FY25, balancing the need for sustained growth with fiscal consolidation imperatives. It plans to achieve this by raising capital expenditure at a slower pace, while moderately increasing revenue spending. The government has set a fiscal deficit target of 4.5% of GDP by FY26 and expects to meet the target this year.

Sources in the Ministry of Finance said the annual expenditure for the current fiscal year ending March 31, 2024 may rise as much as 30 per cent over the initial budgetary allocation of Rs 60,000 crore.

The government expects higher non-tax revenues, including dividends from the RBI and state-run banks, to offset any revenue shortfall from disinvestment

India's fiscal deficit target for FY25 is expected to decrease significantly in line with post-Covid consolidation plans, potentially dropping to a range of 5.3-5.4% of GDP from the current year's 5.9%. Despite a slowdown in capital asset investments, gross market borrowing is anticipated to remain high, with estimates for FY25 around ₹15.3 lakh crore. The reduction in the fiscal deficit target is attributed to a slower pace of capital expenditure, providing room for consolidation. The government is committed to lowering the fiscal deficit to below 4.5% of GDP by FY26.

The government will present an interim budget for FY25 in February, leaving the full budget to the next government after elections a few months after that. The final decision will be taken closer to the interim budget, the official told ET.

“If spending remains muted in the current quarter, the deficit may end up at 5.8% of GDP,” the global investment bank said, noting that receipts upside of 0.2% will help meet this years target and that the government will follow the path of fiscal consolidation.

Budget News: The upcoming budget for FY2025 is expected to allocate Rs 88,000 crore for the rural employment guarantee scheme, marking a 47% boost from the current fiscal year. The government is responding to the surge in demand for employment and an increase in wage rates.

The sticky nature of food subsidies—it’s a constitutional guarantee—means savings need to come from elsewhere