Interim Budget i.e. Vote on Account presented by FM has ensured strong fiscal discipline and continuity of policies. FM’s Budget Speech, as expected, highlighted government’s achievements during their term and laid the foundation for the post-election Budget aiming at inclusive and sustainable development and growth. The Budget post-election should build upon the trinity of investment, inclusive growth and fiscal prudence. Not resorting to excessive populism by announcing new social schemes will be taken positively by the markets.
Strategies for Amrit Kaal were outlined keeping in mind the acronym “GDP- Governance/ Development/ Performance” thereby underscoring transparency, accountability, and people-centric administration. Vision of Viksit Bharat by 2047 encompasses focus on prosperity, modern infrastructure, and opportunities for all citizens.
The priorities outlined in in the Budget revolve around inclusive development and growth, infrastructure, investment, and fiscal prudence. Reiterating the belief “Sabka Saath Sabka Vikas”, the government seeks to empower the poor, women , youth and the farmers. The government emphasises a shift from entitlement-based poverty alleviation to empowering the poor. Programmes like PM Awas Yojana (Grameen), rooftop solarisation, Lakhpati Didi, and various initiatives in healthcare, agriculture, and fisheries have been outlined.
Fiscal consolidation has come under focus with FY24RE at 5.8 per cent and stricter target for FY25BE at 5.1 per cent which is lower than market expectations. By doing this, the government stuck to the glide path to bring fiscal deficit below 4.5 per cent of GDP by FY26. Budgeted tax revenue growth of 11.9 per cent to ₹26 trillion FY25E is realistic but non-tax revenue growth of 6.4 per cent at ₹4 trillion (mainly from higher revenues from telecom sector) and divestment target of ₹500 billion could prove challenging.
Fiscal prudence also reflects in continued efforts to reduce subsidies, fertilizer subsidy cut by 13 per cent. Revenue expenditure as a per cent of GDP continues to decline at 10.4 per cent for FY25BE vs 10.7 per cent for FY24BE.
Infrastructure push
Infrastructure creation for economic growth and employment creation continues to be the core strategy of this Government. Capex outlay increase of 17 per cent at ₹11.11 trillion is over high base of last year where it saw an increase of ~33 per cent. This will account to 3.4 per cent of GDP. Policies to boost State government capex with ₹1.3 trillion of support continued in FY25 as well.
Building the three economic railway corridors under PM Gati Shakti will be a credible push towards reducing the logistics cost inefficiencies and improving lead time.
Reiterating the commitment for net-zero by 2070, FM has highlighted projects to encourage renewables such as offshore wind energy, coal gasification/liquefaction, compressed biogas and incentivizing rollout of EV buses for public transport.
Being an interim Budget, expectedly, no changes done to the direct tax structure but endeavours to simplify tax compliance is seen as government has shown the willingness to let go petty, disputed tax demands.
Globally, India remains one of the fastest-growing major economy. Geopolitical challenges remain and India plays a key role in navigating global geo political risks as was emphasized during its G20 presidency. With the enviable position that India is in, Government is expected to not lose sight on fiscal prudence and growth focus when full Budget will be presented in July and is expected to act as a catalyst to both push capex and inclusive growth. Effort should be towards ensuring that private capex grows as fast as government capex; consumption at the bottom of the pyramid grows as fast as at the top, mass market consumption as fast as premium categories.
The writer is Managing Director of Kotak Mutual Fund