Budget 2024: Expect pro-demand steps to address near term risks, says DBS Bank economist

Union Finance Minister Nirmal Sitharaman is slated to announce the Union Budget for FY24-25 on February 1. Being an election year, the Budget 2024 will be an Interim Budget or vote-on-account.

The Budget 2024 is expected to emphasize on ‘inclusive and prosperous’ policy push in the context of incremental progressive steps in the roadmap over the next 20-plus years, said Radhika Rao, Executive Director and Senior Economist, DBS Group Research.

“Taking a leaf off the pre-election 2019 Budget, we expect this interim edition to propose modest pro-demand steps to address near term risks. To recall, back in February 2019, the incumbent administration had announced fiscal concessions and benefits to the farm sector and other deserving parts of the society. This time, the ruling party dominated the recently held state elections, lowering the likelihood of aggressive competitive populism,” said Rao.

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She expects that the upcoming Budget 2024 will prioritise fiscal consolidation and is unlikely to influence the policy rate path. Along with this, she expects few relief measures for the rural and agriculture sector while maintaining the capex push.

Here are key expectations from the Union Budget 2024 by DBS Group:

Fiscal consolidation likely to be prioritised 

For FY25, she expects the fiscal deficit to be pegged at around the 5.3% of GDP mark, working on a nominal GDP assumption of 10% YoY. A sharper pace of consolidation lies ahead if the FY26 goalpost of 4.5% of GDP is maintained. 

The ruling Bharatiya Janata Party (BJP) outdid its national and regional rivals at the recently held state elections, lowering the risks of outright populist measures, she said.

The FY24 fiscal deficit target at -5.9% of GDP is also expected to be met, despite an anticipated miss in the nominal GDP growth of 8.9% as against the budgeted 10.5%.

Gross borrowings are likely to stay at ₹15.1lakh crore, with redemptions at ₹3.7 lakh crore. Netting out the latter, DBS expects the net bond borrowings to be in the range of ₹11.3-11.5 lakh crore, not far from ₹11.8 lakh crore budgeted for FY24. 

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Support measures to address near-term risks

The government is expected to announce few measures to support the rural or farming community, as the sector faces near-term challenges like poor weather conditions, the fallout of climate change, and inflationary pressures.

Targeted support by way of transfers to make up for output losses due to weather, higher farm insurance outlays, boost to disbursements towards rural employment schemes, irrigation facilities, etc., might be tapped, according to the DBS report. 

Administrative measures via export restrictions or sops on fertiliser purchases and farm inputs could also be part of the mix to relieve purchasing power. Besides these, more durable initiatives like further encouraging the development of the food processing industry, skill development, social spending (education, health), and boosting rural infrastructure are other avenues that might get attention. 

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From a structural perspective, the emphasis on capital expenditure is bound to continue, though rising at a more measured 9-10% YoY. 

Road construction slowed in FY24 but will likely be prioritised for next year. The Railway and National Highway of Authority of India (NHAI) budget will continue to be fully financed by the books, preserving transparency, Rao said.

Long-term interest-free capex loans to states might persist in FY25.

Wider progressive steps to push towards indigenising manufacturing activity are bound to continue, though these announcements are not restricted to the Budget presentation, she added.

Read all Union Budget 2024-related news here