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Business News/ Economy / Budget 2024: Govt to prioritise growth; populist measures to be within limits, says Tanvee Gupta Jain of UBS Securities

Budget 2024: Govt to prioritise growth; populist measures to be within limits, says Tanvee Gupta Jain of UBS Securities

Tanvee Gupta Jain, Chief India Economist at UBS Securities India, expects the government to prioritize growth initiatives through continued capex push and maintain its fiscal consolidation roadmap in Budget 2024.

Tanvee Gupta Jain, Chief India Economist at UBS Securities India

Tanvee Gupta Jain, Chief India Economist at UBS Securities India expects the government to prioritise growth initiatives through continued capex push and maintain its fiscal consolidation roadmap in Budget 2024. In an interview with Mint, Jain shared her views on the Indian and the US economy as well. Edited excerpts:

What are your expectations from the Interim Budget 2024? Do you expect the government may moderate the pace of capex growth for further fiscal consolidations?

The Interim Union Budget to be announced on February 1 is a key event to track in the run-up to the 2024 General Election.

Recent opinion polls and state election results suggest an increased probability that the BJP will perform well in the election and the risk of fiscal populism in the run-up appears to have eased considerably.

Also Read: Budget 2024: No sharp cutback in capex; focus may be on women-centric policies, says Achala Jethmalani of RBL Bank

We expect the central government to remain on the fiscal consolidation path and to target a fiscal deficit of 5.3 per cent of GDP (versus 5.9 per cent in FY24E).

Consolidation will likely come from moderation in government capex growth likely towards 15 per cent year-on-year (YoY) from nearly 30 per cent YoY registered in the past three years (with interest-free loans to States for capex likely to be discontinued or curtailed), an increase in revenue receipts and some reduction in other revenue expenditure.

Also Read: Budget 2024: Infra, defence, railways could be in focus; market to be rangebound, says Arpit Jain of Arihant Capital

While there could be some populist measures (including higher handouts to farmers under PM Kisan), these will likely be within limits.

What budgetary measures can give further impetus to the domestic economy?

We expect the government to prioritise growth initiatives through continued capex push and maintain its fiscal consolidation roadmap (4.5 per cent of GDP by FY26).

Also Read: Budget 2024: Govt may announce sops for the middle class, rural segments: Rupen Rajguru of Julius Baer India

How do you see the prospects of the Indian economy in the next financial year? What are some bright areas that you observe?

The UBS economics team forecasts global growth to be 0.5pp weaker in 2024 than in 2023, mostly due to the US and China.

Despite external headwinds, we expect India to remain one of the fastest-growing major economies in 2024.

We maintain our FY25 real GDP growth estimate of 6.2 per cent YoY (consensus: 6.3 per cent YoY). Normal monsoon (with El Nino conditions peaking in March 2024), expectations of lower interest rates (globally) and stabilising energy prices would be additional tailwinds.

We expect India to maintain medium-term growth of 6.5 per cent YoY in FY26-FY30. India's potential growth could benefit from digitalisation adoption, increased services exports and a manufacturing push.

Also Read: IMF projects strong India growth in 2024, says global 'soft landing' in sight

Is there a strong possibility of the US slipping into a recession this year? How could it impact the Indian economy?

Even as the probability of recession is low at this moment, our UBS US economics team forecast a mild contraction in the middle of 2024.

We calculated Asian GDP growth betas to a 1ppt change in a weighted aggregate of US/EU real GDP growth.

High exports-to-GDP economies mostly have high betas, while betas for China, India and Indonesia are low (sub 0.5).

Even though India will likely be one of the less affected economies due to the spillover effects of a global slowdown, it is not immune.

Also Read: IMF raises 2024 global growth forecast to 3.1% citing unexpected ‘resilience’

Is the worst in terms of inflation behind us? How do you see the inflation trajectory for the next financial year?

In the near term, we expect headline CPI inflation to soften towards 5-5.2 per cent YoY in the March 2024 quarter on benign core inflation and cooling food prices.

Going ahead, we expect headline CPI inflation to moderate from 5.4 per cent YoY in FY24E to 4.5 per cent YoY in FY25E, as food prices normalise and supply conditions improve.

However, we believe inflation in this cycle will take much longer to reach the medium-term target of 4 per cent on a sustainable basis.

We see scope for a shallow rate cut cycle in FY25 once inflation moderates and the Fed starts its easing cycle.

Disclaimer: The views and recommendations above are those of the expert, not of Mint. We advise investors to check with certified experts before making any investment decisions.

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