An interim budget, by its very nature, is not supposed to evoke much excitement as prudence dictates that there should be nothing different under normal circumstances. This is a view which has also been endorsed by the finance minister. What then, can the areas of interest be?
The most useful part of any budget is the revised estimates of the projections made in the previous year, which would be FY24. Hence the size of the budget, expenditure outlays, as well as revenue from various sources would be reported. Based on past experiences, these revised numbers normally do not change much when the final accounts are presented later during the year. This is because all expenditures tend to get adjusted to the revised budgetary numbers in the next two months. And more importantly, the revised fiscal deficit ratio would be the key to all projections made for FY25 as it becomes the starting point of moving back along the path of fiscal prudence.
There is reason to be sanguine on the revenue side. There has been some very good news on both direct and indirect tax collections. The government has also received a higher-than-expected surplus from the RBI and the PSUs are to contribute substantially to the kitty. However, disinvestment has been tardy and it does look like that there would be considerable slippage here. But this may not matter if all gains and losses on the revenue side are netted.
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On the expenditure side, there have been announcements made on higher allocations, especially on the subsidy front, with the free food scheme being extended for another five years. But on the positive side, the overall spending has been reined in ostensibly on the premise that the government would like to wait and watch how these number play out before letting various ministries spend their resources. Presently, the accounts do indicate that expenditures on social schemes like MGNREGA, subsidy, housing etc. are going according to plan. All this means that the fiscal numbers should be achieved and even though the denominator of the ratio, nominal GDP, will be lower than was projected, it may not really matter.
The other area of interest will be the capex plans. While arguably there can be no significant new programme introduced, the overall budget size would probably be 10-12% higher than last year, which was around `45 trillion. The Interim Budget does not stop the government from allocating the available resources on ongoing schemes and plans. Last year, capex was 22% of the total budget, and if the same remains, there can be around a `1-1.5 trillion increase from the `10 trillion budgeted amount for FY24. It does appear that the government would persevere with the capex thrust and go beyond the 22% ratio of last year. But it has to also keep in mind the allocations for social welfare, which is important especially in an election year. There are several schemes including subsidies, insurance, employment, housing, water, education etc. which will have to be persevered with, and hence the overall allocation would be monitored.
On the revenue side, the take on disinvestment will be interesting. This is so because FY24 has not been a very good year for these programmes, even though the timing was good in the sense that the market conditions were favourable, with the Sensex scaling new heights. It is more likely that the tilt will be more for asset monetisation, which can be completed based on the available calendar rather than selling stake in PSUs. This is so because practically speaking, the government would have nine months to complete the process, which may not be adequate. Also, the market conditions cannot be conjectured at this point of time.
Last would be the fiscal deficit. While the ultimate short-term target is 4.5% for the fiscal deficit, a vital call has to be taken on lowering the same from the present level of 5.9%. Last year, the pitch was for a reduction of 50 bps. But this may be on the lower side as the onus would then be on FY26 to be more aggressive. Therefore, the toss would be between 50 and 75 bps. Anything more may be difficult given that spending commitments are still high, with the Centre doing the heavy lifting on capex.
The fiscal deficit number matters for the market as it would determine the ultimate borrowing programme of the government. In the last couple of years, the government has spread this out across market borrowings (which is the main source) and small savings, drawing down of cash balances, and short-term borrowings. There would be substantial redemptions this year—at around `4 trillion—which will increase the gross borrowing by this amount. Hence, the gross borrowing amount will be a market mover, even though this is an Interim Budget. It can also be assumed that this number is unlikely to change even in the final budget later this year.
Hence, the budget will have a lot for the analyst from the point of view of numbers. The allocations across various heads may not be significantly different from the past and would be scaled up depending on the size of the budget that is pitched for. There could be some reallocations across these headings. But it can be taken for granted that primacy will be given to fiscal prudence, as the overall economic environment is good and this is the right time to expedite the process. While 4.5% is the short-term goal, we need to move to 3% with more urgency, as that has been the ultimate goal. This budget can be a useful starting point.
Madan Sabnavis, chief economist, Bank of Baroda
Views are personal
An interim budget, by its very nature, is not supposed to evoke much excitement as prudence dictates that there should be nothing different under normal circumstances. This is a view which has also been endorsed by the finance minister. What then, can the areas of interest be?
The most useful part of any budget is the revised estimates of the projections made in the previous year, which would be FY24. Hence the size of the budget, expenditure outlays, as well as revenue from various sources would be reported. Based on past experiences, these revised numbers normally do not change much when the final accounts are presented later during the year. This is because all expenditures tend to get adjusted to the revised budgetary numbers in the next two months. And more importantly, the revised fiscal deficit ratio would be the key to all projections made for FY25 as it becomes the starting point of moving back along the path of fiscal prudence.
There is reason to be sanguine on the revenue side. There has been some very good news on both direct and indirect tax collections. The government has also received a higher-than-expected surplus from the RBI and the PSUs are to contribute substantially to the kitty. However, disinvestment has been tardy and it does look like that there would be considerable slippage here. But this may not matter if all gains and losses on the revenue side are netted.
On the expenditure side, there have been announcements made on higher allocations, especially on the subsidy front, with the free food scheme being extended for another five years. But on the positive side, the overall spending has been reined in ostensibly on the premise that the government would like to wait and watch how these number play out before letting various ministries spend their resources. Presently, the accounts do indicate that expenditures on social schemes like MGNREGA, subsidy, housing etc. are going according to plan. All this means that the fiscal numbers should be achieved and even though the denominator of the ratio, nominal GDP, will be lower than was projected, it may not really matter.
The other area of interest will be the capex plans. While arguably there can be no significant new programme introduced, the overall budget size would probably be 10-12% higher than last year, which was around `45 trillion. The Interim Budget does not stop the government from allocating the available resources on ongoing schemes and plans. Last year, capex was 22% of the total budget, and if the same remains, there can be around a `1-1.5 trillion increase from the `10 trillion budgeted amount for FY24. It does appear that the government would persevere with the capex thrust and go beyond the 22% ratio of last year. But it has to also keep in mind the allocations for social welfare, which is important especially in an election year. There are several schemes including subsidies, insurance, employment, housing, water, education etc. which will have to be persevered with, and hence the overall allocation would be monitored.
On the revenue side, the take on disinvestment will be interesting. This is so because FY24 has not been a very good year for these programmes, even though the timing was good in the sense that the market conditions were favourable, with the Sensex scaling new heights. It is more likely that the tilt will be more for asset monetisation, which can be completed based on the available calendar rather than selling stake in PSUs. This is so because practically speaking, the government would have nine months to complete the process, which may not be adequate. Also, the market conditions cannot be conjectured at this point of time.
Last would be the fiscal deficit. While the ultimate short-term target is 4.5% for the fiscal deficit, a vital call has to be taken on lowering the same from the present level of 5.9%. Last year, the pitch was for a reduction of 50 bps. But this may be on the lower side as the onus would then be on FY26 to be more aggressive. Therefore, the toss would be between 50 and 75 bps. Anything more may be difficult given that spending commitments are still high, with the Centre doing the heavy lifting on capex.
The fiscal deficit number matters for the market as it would determine the ultimate borrowing programme of the government. In the last couple of years, the government has spread this out across market borrowings (which is the main source) and small savings, drawing down of cash balances, and short-term borrowings. There would be substantial redemptions this year—at around `4 trillion—which will increase the gross borrowing by this amount. Hence, the gross borrowing amount will be a market mover, even though this is an Interim Budget. It can also be assumed that this number is unlikely to change even in the final budget later this year.
Hence, the budget will have a lot for the analyst from the point of view of numbers. The allocations across various heads may not be significantly different from the past and would be scaled up depending on the size of the budget that is pitched for. There could be some reallocations across these headings. But it can be taken for granted that primacy will be given to fiscal prudence, as the overall economic environment is good and this is the right time to expedite the process. While 4.5% is the short-term goal, we need to move to 3% with more urgency, as that has been the ultimate goal. This budget can be a useful starting point.
Madan Sabnavis, chief economist, Bank of Baroda
Views are personal
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