The Budget presented was an interim one, yet various segments, ranging from individuals to corporates, had myriad expectations of it. It can be said with some degree of confidence that the core content of the budget as well as the numbers in the broader sense would largely be unchanged when the final budget is presented. So, how does the budget look?
First, the speech gave an exhaustive summary of all the schemes that the government has run, partly through the budget over the last 10 years. It indicates that the basic thrust of the budget would continue to be on alleviating the standard of living of the people at the lower income level. Therefore, there is no compromise on any of these objectives, though the rather good economic environment does provide enough room for funding the same. The strategy going forward is to bring about growth through two engines, with one of them being from below, where development through incentives and cash handouts would be pursued.
Second, the private sector was looking at the capex plans of the government. This time, there has been a more modest increase of 11.1 per cent, which brings it to Rs 11.1 lakh crore. Hence, the momentum has been maintained while working within the confines of the fiscal constraints under which the budget was formulated. The ratio of capex to GDP is virtually unchanged at 3.4 per cent. There is, therefore, continuity in the areas of roads, railways, defence and urban development, and so, the backward linkages to industries like steel, cement, machinery, chemicals should be forged. Hopefully, the states will also follow suit and increase and implement their capital plans in FY25 to create a sharper impact. To get a sense of focus, out of the increase of Rs 2.76 lakh crore in size of the budget, 40 per cent has been allocated for capex, which is high.
Third, the budget has been aggressive in lowering the fiscal deficit ratio by 0.7 per cent of GDP to 5.1 per cent for the coming year, thus moving closer to the target of 4.5 per cent of FY26. This shows determination to move to the target laid down by the Fiscal Responsibility and Budget Management Act (FRBM). In fact, it can be expected that going ahead, the government would also be targeting the ultimate goal of 3 per cent of GDP. This is good for the markets as the gross borrowing programme of the government would be lower at Rs 14.13 lakh crore, which will put less pressure on banks. Given that there would be more FPI coming in due to the inclusion of Indian bonds in global bond indices like the one of JP Morgan, there will be more funds left with banks for financing credit demand from the private sector.
Fourth, prudence has also been shown by not giving away anything on the tax front. It was stated upfront by the FM that the structure remains unchanged given the fact that the nature of the budget was different. In this sense, there is no relief for the middle class.
Fifth, the disinvestment target has been kept at Rs 50,000 which is a bit ambitious considering that it would be Rs 30,000 crore for FY24. Given that there would practically be nine months at most for driving the programme next year, there could be more asset monetisation rather than disinvestment for the target to be met. This is more or less neutral for markets.
Last, the twin subsidies have been reduced from Rs 4 lakh crore to Rs 3.7 lakh crore. Food subsidy, too, is to be lowered by around Rs 10,000 crore. This is interesting given that the MSP is increased every year by 5-8 per cent across the spectrum of crops. This number can slip in case of any disturbances like crude oil prices.
How can one look at this statement then? It is definitely a balance sheet of all the achievements of the government in the past and the aspirations for the future. The focus is on women, youth, poor and farmers and the schemes made for these segments would be given a further push. There is nothing overt for the individuals or even the MSMEs though it can be expected that there could be some incentives provided in the final budget.
The immediate reaction of the market is interesting. The Sensex and Nifty were down between the start and end of the speech though they could have been impacted by other factors that transpired on January 31. The 10-year bond, however, moderated as the borrowing programme of the government appears to be more modest. One cannot rule out the effect of the Fed meeting yesterday, too, where rate cuts were indicated. This can, however, be an immediate reaction and there could be corrections once other fundamentals that drive bond yields kick in.
Hence, the budget should be interpreted more as a statement that lays down the roadmap for the future while reiterating a commitment to the FRBM path. The numbers are mere extensions of those of FY24 in general. This has been done with a reasonable GDP growth estimate of 10.5 per cent and hence does not overstate revenue projections.
No comments:
Post a Comment