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Business News/ Economy / Budget 2024 Expectations: From capex target to fiscal deficit, CareEdge predicts these changes for India's economy
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Budget 2024 Expectations: From capex target to fiscal deficit, CareEdge predicts these changes for India's economy

CareEdge expects the government to continue its focus on capex target, GDP growth, and fiscal consolidation. The analytics firm also predicts a slight fiscal deficit slippage this year on lower nominal growth.

Given that 2024 is a year of general election, the finance minister will present a vote of account or interim budget, rather than a comprehensive annual budget. Photo: AFPPremium
Given that 2024 is a year of general election, the finance minister will present a vote of account or interim budget, rather than a comprehensive annual budget. Photo: AFP

Finance Minister Nirmala Sitharaman will unveil the Interim Budget for the financial year 2024-2025 (FY25) on February 1, 2024, which is likely to keep the focus on fiscal consolidation and nominal economic growth projection, according to credit ratings and analytics firm CareEdge.

Since 2024 is an election year, with Lok Sabha Elections expected in April-May, the finance minister will present an Interim Budget or a Vote on Account in February, rather than a comprehensive annual budget. After the formation of the new government, the new full Budget is expected in July this year.

Also Read: Budget 2024: Focus on rural schemes, infra investment likely, says veteran fund manager Mihir Vora

Sitharaman's declaration that it will be a vote of account suggests that no significant policy announcements are likely expected in this interim budget. With the announcement of the election dates around mid-March, the model code of conduct (MCC) is expected to come into effect barring the government from announcing any policy decisions.

As a a Vote on Account is merely an interim authorisation to spend money, as opposed to a full Budget that includes details of expenditures and receipts, including tax changes and government policies, this time significant tax and policy changes are unlikely.

The upcoming pre-election interim budget occurs at a juncture when the overall economic landscape appears stable, which is underpinned by the easing of financial conditions, and robust macroeconomic data, according to CareEdge. 

‘’The current budgeting exercise is also confronted by economic headwinds such as the deceleration in the global economy, pressures in the agriculture sector, and strains on the rural economy,'' said the credit ratings agency.

Also Read: Nirmal Bang highlights 6 major themes that could dominate the Interim Budget 2024

CareEdge expects the government to continue its focus on capital expenditure (capex) and fiscal consolidation in FY25. The analytics firm also predicts a slight fiscal deficit slippage this year on lower nominal growth. 

Here are the five key highlights of Interim Budget 2024 expectations as predicted by CareEdge for next month. Take a look:

1.Capex target likely to rise for FY25

CareEdge expects the government to stick to its capex target of 10 lakh crore in FY24 and raise it further by around 10 per cent to 11 lakh crore in FY25. The capex to total expenditure ratio is expected to inch up marginally to around 23 per cent in FY25, according to the firm. The government has been focussing on public infrastructure to drive capex growth.
 

2.Focus on fiscal consolidation to continue

Adhering to its glide path to attain a fiscal deficit of 4.5 per cent by FY26, the projected fiscal deficit for FY25 is set at 5.3 per cent of the gross domestic product (GDP). CareEdge anticipates a nominal GDP growth of 10.7 per cent in FY25, coupled with a tax buoyancy of 1.2. 

‘’In FY25, the total expenditure is expected to rise by six per cent, primarily fuelled by a 10 per cent increase in capital expenditure, complemented by a more modest five per cent growth in revenue expenditure,'' said the credit rating agency.
 

3.Low nominal growth may result in fiscal deficit slippage 

The projection for nominal GDP growth indicates a slowdown from the budgeted 10.5 per cent YoY of the previous year to 8.9 per cent, as per the first advanced estimate. This deceleration is primarily attributed to deflation in the whole price index.

‘’Consequently, a slight slippage of 10 basis points, when viewed as a proportion of nominal GDP, is anticipated. This adjustment prompts a revision in our FY24 fiscal deficit projection to six per cent of GDP,'' said CareEdge.

Also Read: Budget 2024: Govt likely to keep disinvestment target below 50,000 crore, says ICRA

4.Gross tax collection to exceed budgeted amount

According to data from the Comptroller and Auditor General (CAG) for the April-November period, direct tax collections have surged at a rate of 24.8 per cent YoY, significantly outpacing the full-year budgeted growth of 10.5 per cent.

In contrast, the gross indirect tax collections recorded a more modest growth of 5.1 per cent YoY during the same period, falling short of the full-year budgeted growth of 10.5 per cent. However, driven by the strong performance of the direct taxes, CareEdge expects the gross tax collection to rise by 11.9 per cent, higher than the budgeted growth of 10.4 per cent, exceeding the budgeted amount by about 45,000 crore. 

‘’While indirect taxes are anticipated to fall short by approximately 49,000 crore in FY24 from the budgeted amount, the direct tax collections are expected to surpass the budgeted value approximately by a significant 94,000 crore, reflecting the strong performance of direct tax components,'' said CareEdge.
 

5.Revenue expenditure to exceed budgeted value

While the government is expected to meet its capital expenditure target of 10 lakh crore, CareEdge projects some slippages in the revenue expenditure to the tune of about 73,400 crore. Last month, the government approved the first supplementary demand for grants, amounting to Rs. 1.29 lakh crore.

Taking into consideration the savings from another scheme worth 70,900 crore, the net additional outlay would be 58,400 crore. The additional funds were directed toward food subsidies, fuel subsidies, fertilizer subsidies, and Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA).

‘’Given that the actual expenditure on the MNREGA has already surpassed the budgeted allocation, and with persistent high subsidy spending, particularly on fertilizers, we anticipate an additional requirement of funds for expenditure,'' said the credit ratings agency.
 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.

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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 20 Jan 2024, 07:51 AM IST
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