Budget 2024: Govt likely to focus on fiscal consolidation in 2024

Fiscal consolidation: Given the favourable macroeconomic backdrop and expectations of the benign domestic environment sustaining in the next fiscal, ICRA expects the government of India to continue on the fiscal consolidation path in the Union Budget for FY2025. 

According to ICRA, the focus on fiscal consolidation is likely to entail a slower expansion in capex vis-à-vis that seen in the post-Covid years, which could weigh on the growth in economic activity. 

No major policy announcement expected

Additionally, with the upcoming Budget set to be an interim one for the purpose of a vote-on-account, major policy changes and announcements are unlikely at this juncture. 

We expect the GoI’s gross tax revenues (GTR) to grow by a healthy 11 per cent in FY2025, led by direct taxes and GST collections, even as the growth in excise and customs duty collections is likely to be subdued. With ICRA’s nominal GDP growth forecast of 9.5 per cent, tax buoyancy is assumed at a healthy 1.2 in FY2025 (against 1.4 expected for FY2024), in line with the historical average seen during FY2015-19. 

The disinvestment target is likely to be pegged at sub-Rs. 500 billion for FY2025. Given the uncertainties involved in market transactions, it would be prudent to set a moderate target of sub-Rs. 500 billion for FY2025, instead of a higher aim that may disrupt the budget math if there is a large shortfall in such receipts by the end of the fiscal, based on the past year trends. 

ICRA expects the revenue expenditure to increase by a modest ~4 per cent in FY2025 (albeit over the somewhat higher than-budgeted number expected for FY2024), led by a moderate growth in interest payments amid a slight moderation in allocation for subsidies and a continued focus on curtailment of other expenses. 

We estimate the GoI to budget for a capex of Rs. 10.2 trillion in FY2025, implying a relatively sedate YoY expansion of ~10 per cent, compared to over 20 per cent expansion seen in each of post-Covid years. The slowdown in capex growth is likely to have some bearing on economic activity and GDP growth.