Fiscally Prudent Budget : Better distribution of resources to different sectors of the economy in the budget was just like how a team can pick the best 11 and win the world cup of cricket. Finance Minister Nirmala Sitharaman has presented this budget for the 7th time keeping in mind the vision of India’s Developed India 2047. Despite several headwinds, the central government has continued on the path of fiscal prudence with a budgeted fiscal deficit of 4.9 per cent of GDP for FY 2024-25, down from 5.1 per cent projected at the time of the interim budget in February 2024. Apart from this RBI dividend of Rs 1 lakh crore was used partly to reduce the fiscal deficit and partly to increase revenue expenditure.
Income tax is expected to increase by 16.1%
Budget figures look somewhat conservative with nominal GDP growth assumed to be 10.5 per cent for FY 2024-25. The tax revenue in the financial year 2024-25 is also estimated to increase by 11 percent from the provisional actual of the financial year 2023-24. Hence, the idea of a hike in taxes also looks somewhat conservative. Thus, we can conclude that the budget numbers are reliable. Also, corporate tax is estimated at Rs 10.2 trillion, which shows a growth of 10.5 per cent over the revised estimate for FY2024. Income tax is estimated to increase by 16.1 per cent during FY24RE.
There will be a surge in government revenue
The government has budgeted a revenue of Rs 31.29 trillion and a capital receipt of Rs 780 billion for FY24-25. Apart from this, the total expenditure for the financial year 2024-25 has increased from Rs 47.7 trillion in the interim budget to Rs 48.2 trillion in the full budget. Capex has been capped at Rs 11.11 trillion, the same level as in the interim budget, a growth of 17 per cent over FY 2023-24. At the same time, the fiscal deficit is also expected to decrease from Rs 16.8 trillion to Rs 16.1 trillion.
The goal of developed India
The government has allocated Rs 1.5 trillion as special assistance in the form of loans to states for capex under the Developed India target in its budget. Apart from this, the government aims to boost agriculture by promoting productivity. The budget also focuses on providing support to manufacturing and services by launching a credit guarantee scheme for MSMEs and providing credit support during periods of stress.
The central government finances its fiscal deficit mainly by issuing dated securities. A dividend of Rs 1 trillion from the RBI helped the government to meet its fiscal deficit to some extent. An initial cash balance shortfall of Rs 1.40 trillion has been estimated in the budget.
Duty reduction on gold import
A cut in import duty on gold and silver has been announced in the budget. The current account deficit (CAD) for FY23-24 was recorded at 0.7 per cent of GDP, giving the government confidence to reduce these taxes as India’s external balance appears to be under control. Apart from this, strong services exports are also providing support.
Sovereign rating may be upgraded
The government aims to keep the fiscal deficit below 4.5 percent in FY2026 and the sovereign rating may be upgraded due to a reduction in borrowing. As indicated recently by S&P when it upgraded the outlook on Indian sovereign rating to positive. With inclusion in global indices, attractive yields, stable macro and strong GDP growth, the Indian bond market remains attractive to foreign investors. This bodes well for the fixed income market in FY25 and beyond.
