Nirmalaji, What Surprises Can We Expect?

IMAGE: Finance Minister Nirmala Sitharaman and Minister of State for Finance Dr Bhagwat Kishanrao Karad at the Halwa ceremony as the final stage preparations for the Interim Union Budget 2024 commences in New Delhi, January 24, 2024. Photograph: ANI Photo

The interim Budget proposals that will be presented on February 1 in the backdrop of the general elections scheduled in April/May 2024 are likely to have a hint of populism, believe analysts, but are unlikely to derail the government from its path of fiscal prudence.

‘We estimate 2024-25 fiscal deficit target at 5.2 per cent of gross domestic product (GDP). Assuming the tax revenue growth at around 12.5 per cent — similar to 2023-24 estimates (FY24E), driven by 11 per cent nominal GDP and 15 per cent corporate earnings growth — the total expenditure growth would have to be limited to nearly 7-8 per cent (versus 9 per cent in FY24E),’ wrote Mahesh Nandurkar, managing director, Jefferies, in a note co-authored with Abhinav Sinha and Nishant Poddar.

This low capital expenditure (capex) number, Jefferies said, might disappoint the market; and stocks exposed to the government’s capex programme may see some correction.

Although Nandurkar does not expect an immediate tax hike considering elections, some after-election measures, such as higher capital gains tax, are possible later during the year.

‘Disinvestment may also get ramped up after elections, partly as the government capitalises on the sharp run in public sector undertaking stocks in sectors such as railways, defence, etc. Any significant boost to rural infrastructure/welfare schemes will be a sentimental positive for cement/rural recovery.’Nandurkar and Poddar wrote.

‘Renewed interest subvention scheme for affordable/mid-income housing is likely, which will be a positive for select developers such as Lodha, Sunteck and housing finance companies such as Aavas and Home First,’ they added.

Higher-than-budgeted tax and non-tax revenue, said analysts at BofA Securities, is likely to provide for the potential shortfall in divestment proceeds, higher than budgeted subsidy bill, modestly higher interest expense, and other revenue expenditure.

“We do see some saving on the loans and advances component of capex. This should result in a lower than budgeted fiscal deficit in absolute terms while meeting the target 5.9 per cent of GDP,” said Aastha Gudwani, India economist at BofA Securities.

The upcoming general elections may see some populist schemes in this interim Budget, especially measures directed at the farm/agriculture economy.

The measures, according to analysts at Motilal Oswal Financial Services, may include the expansion of the Pradhan Mantri Kisan Samman Nidhi to Rs 9,000 per annum from the current Rs 6,000 per annum, or increased benefits in the form of an insurance scheme or higher Maha-tma Gandhi National Rural Emplo-yment Guarantee Act allocation.

Since the government is in election mode, analysts at Nomura believe there will be tacit targeting of its key constituents, with the interim Budget likely to be a political statement.

Since most opinion polls expect the current dispensation to be back in power, the interim Budget will likely be presented under the assumption of policy continuity.

‘The ruling Bharatiya Janata Party has adopted a ‘GYAN’ strategy for the general elections — Gareeb (poor), Yuva (youth), Annadata (farmers), and Nari (women) — indicating the four key constituents that it is looking to target with its economic pitch,’ said Sonal Varma, chief economist for India and Asia ex-Japan at Nomura in a recent note co-authored with Aurodeep Nandi.

The markets, on their part, have been expecting the removal of securities transaction tax for a few years now. This tax (charged at 0.1 per cent for delivery-based equity trading) is levied on the value of securities transacted through a recognised stock exchange in India.

Markets also expect a more comprehensive policy on cryptocurrency regulation,” wrote analysts at ICRA Analytics in a recent note.