ET quoted Sonam Srivastava, smallcase Manager & Founder of Wright Research, saying that the upcoming Budget is important, with expectations running high.The focus is on potential tax relief measures for boosting consumption and investment, particularly for salaried individuals and MSMEs. There’s also an expectation of increased funding for infrastructure projects to create jobs and spur economic growth. The Budget’s outcomes may have a notable impact on market sentiment and shape the economic direction for the upcoming year, Sonam Srivastava said.
As an interim budget, it is expected that the government will persist with manufacturing incentives, back infrastructure-related capital expenditure in the country, and outline a strategy for disinvestments.Until the budget, which will be a vote on account, sectors such as railways, defence, infrastructure, power, renewables, auto, manufacturing, real estate, etc., will remain the focal points of attention.
Here are the key factors investors should pay attention to in Budget 2024:
Tax
Despite challenges in lowering the income tax rate due to fiscal constraints, taxpayers anticipate populist measures such as raising the basic exemption and house rent allowance exemption in both the new and old tax regimes.
Srikanth Subramanian, CEO of Kotak Cherry, suggested that adjustments could be made to the income tax structure to promote the new taxation regime, aiming to simplify the overall tax system.
Capex
Over the last three years, the government has been increasing capital expenditure (capex) by more than 30% annually, setting the capex target at 3.3% of GDP, the highest in 18 years. Goldman Sachs predicts the government will meet the capex target in FY24 due to positive gross tax revenues. However, it anticipates a slowdown in capex growth to around 10% Year-over-Year in FY25, in line with the government’s medium-term fiscal consolidation plan.
Deutsche Bank anticipates that the on-budget capital expenditure for FY25 will be Rs 11 lakh crore, compared to Rs 10 lakh crore in FY24.
Fiscal deficit target
ICRA predicts that the fiscal deficit target for FY2025 will likely be established at 5.3% of GDP. This falls between the anticipated figure of 6.0% for FY2024 and the medium-term target of below 4.5% by FY2026.
According to ICRA’s calculations, every 10 basis points (bps) increase in the fiscal deficit-to-GDP ratio would enable an extra capital expenditure (capex) of Rs 324 billion.
Goldman Sachs expects that the government will achieve the fiscal deficit target for FY24, set at 5.9% of GDP.
Subsidies
The government has expanded the free food program for 800 million beneficiaries for the next five years. This is expected to incur a cost of 0.7% of GDP in FY25. Goldman Sachs expects that the cooking gas subsidy will be less than 0.1% of GDP due to lower oil prices, and the fertiliser subsidy is expected to be slightly higher than the pre-pandemic average of 0.5% of GDP in FY25.
Market borrowings
Goldman analysts suggest that due to sufficient demand for government bonds from Foreign Institutional Investors (FIIs) and domestic investors, along with expectations of rate cuts in FY25, the Reserve Bank of India (RBI) might become a net seller of government bonds in the fiscal year 2025.
Goldman Sachs also predicts that the total issuance for both the central and state governments in FY25 is expected to be approximately Rs 17 – 18 trillion. To cover the central government’s fiscal deficit of nearly Rs 18 trillion in FY25, Goldman estimates a net borrowing of around Rs 12 trillion, after accounting for non-market financing from sources like small savings and state provident funds. Additionally, for state governments, they assume that 70% of the fiscal deficit in FY25 (equivalent to 2.5% of GDP) will be financed through market loans, resulting in state net borrowing of Rs 5.8 trillion in FY25.
