The Union Budget, to be presented on July 23, is likely to accelerate the virtuous circle with a twin strategy - boosting manufacturing and pushing consumption while ensuring a fiscal consolidation glide path aimed at achieving a 4.5 per cent fiscal deficit by the end of FY26.

This will be the 7th successive budget for Finance Minister Nirmala Sitharaman, and with this, she will surpass the Late Morarji Desai’s record of presenting 6 successive budgets. Overall, Desai presented 10 budgets. In all likelihood, Sitharaman might surpass the 10-budget record also during her second term as Union Finance Minister.

Last week, Sitharaman completed pre-budget consultations which started on June 19. During these meetings, more than 120 invitees across 10 stakeholder groups gave their suggestions including boosting consumption, lowering tax rates, bringing more clarity on new pension schemes, checking the fiscal deficit, and incentivising manufacturing, beside others. Aiming to reach the ‘Developed Nation’ status by 2047 and taking the Indian economy to the third place in the short to medium term, Sitharaman is likely to give a boost to consumption through providing more money in the hands of people, especially the salaried class, and bringing down the cost by incentivising manufacturing.

Most studies report some changes in key headline numbers. They believe that higher non-tax revenue in the form of a record surplus transfer by the RBI and strong buoyancy in tax collection are likely to give some extra headroom to the government.

ICRA, in its report on ‘Budget 2024-2025 Expectations’, feels revenue receipts may be revised upward by 1.2 lakh crore as compared to the Interim Budget. Some increase in the revenue expenditure (revex) is also expected, largely focused on the rural economy. The budget “is likely to set a fiscal deficit target at 4.9-5 per cent for FY25 as against Interim Budget’s estimate of 5.1 per cent of GDP, without compromising the capital expenditure target of ₹11.11 lakh crore,” it said, while adding that there is a high likelihood of reducing net market borrowings for FY25 by ₹35,000-55,000 crore.

A research report by Motilal Oswal Financial Services has proposed using additional receipts such as surplus transfer from RBI. ₹30,000-40,000 crore could be utilised to reduce the fiscal deficit by 10 bps to 5 per cent. “One of the ways to spend additional resources could be to provide more capex-related loans to States, which would also make the Center’s total capital spending (including loans & advances) look better. The Center budgeted ₹1.4 lakh crore to States and UTs as loans & advances in FY25 in the Interim Budget, which could be increased by ₹30,000-40,000 crore,” it said.

Similarly, if the government decides to revise the instalments under PM-KISAN by 50 per cent to ₹9,000 per annum, it would entail the cost of another ₹30,000 crore to the exchequer. The remaining ₹50,000 crore could be used by the Union government to provide some more incentives to the taxpayers to shift to the new tax regime and to expand on housing schemes or various other schemes. Overall, “we do not expect the government to divert from its fiscal deficit consolidation path while improving the quality of fiscal spending. It is, however, very likely that fiscal spending could be increased (vs. Feb’24 budget), due to higher receipts led by the RBI dividend,” the report said.

Pointers:

Full Union Budget, 2024-25: Expectations -

  • Relief in income tax, especially for salaried class
  • Making new tax regime more attractive
  • Changes in faceless assessment scheme
  • More funds for PLI Schemes, more new sectors/sub sectors to be added
  • Scheme to further incentivise manufacturing
  • Raising per farmer outgo under Kisan Samman
  • Not much change in Capital Expenditure, as prescribed in the Union Budget
  • Minor tweaking in fiscal deficit target to bring it down to 5 or even 4.9 per cent
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