BOB FY25 budget preview: Government focuses on fiscal consolidation and rural growth
Jan 25, 2024
New Delhi [India], January 25 : In anticipation of the upcoming 2024-25 budget, an interim one preceding the General Elections, the government is set to prioritize maintaining policy continuity and committing to fiscal consolidation.
According to Bank of Baroda economist Sonal Badhan, the fiscal deficit target for FY24 is expected to be achieved at 5.9 per cent, with potential risks from lower-than-anticipated nominal GDP growth and higher expenditure.
The FY25 budget aims to further reduce the deficit target to a range of 5.4-5.5 per cent.
Addressing the challenges posed by a weak monsoon and subdued Rabi sowing, the budget is poised to boost rural growth through increased spending on schemes like MGNREGA, PM KISAN, and PMAY.
Additionally, the government plans a significant rise in capital expenditure, with an expected incremental increase of Rs 1.5-2 lakh crore for the next fiscal year.
While no major tax changes are anticipated in this interim budget, the government may consider increasing standard deductions to sustain consumption growth.
Incentives to attract more taxpayers to adopt the new tax regime, along with tax incentives for environment-friendly practices in tourism, may be announced.
Custom duties on certain finished products and a reevaluation of savings under section 80C are also on the radar.
Fiscal deficit for FY25 is projected to be in the range of 5.4-5.5 per cent of GDP, supported by domestic conditions and steady growth.
The gross borrowing program is expected to increase only marginally in FY25, with additional inflows from the inclusion of Indian bonds in the JP Morgan Global Bonds Index. The budget size is estimated to range between Rs 49-50 lakh crore.
Subsidies, following a sharp increase in FY24, are expected to be rationalized in FY25, with a focus on containing food and fertilizer subsidies. Interest payments, driven by elevated interest rates, are estimated to increase steadily to Rs 12.4 lakh crore in FY25.
To sustain growth and remain the fastest-growing major economy, the government plans to prioritize capital expenditure.
Capital spending is estimated to see a 20 per cent jump to Rs 11.5-12 lakh crore in FY25, while revenue expenditure is expected to increase less substantially.
Tax receipts are crucial for achieving fiscal consolidation, with net revenue collections expected to register growth in FY25. As the budget on February 1, 2024, is an interim one, no significant announcements are expected.
The government is anticipated to adhere to its fiscal consolidation path, focusing on rural support and sustaining momentum in spending.
