A dozen brokerages and investment banks have come out with research notes on what investors should expect from the finance minister Nirmala Sitharaman this coming Budget. The broader expectation is that the budget would support consumption and have a strong focus on manufacturing, with an emphasis on MSMEs. It is seen focusing on higher infrastructure spending, asset monetisation, and agriculture and rural spending. A look at past pre-election years also suggests a likely higher capex and rural spending is in the offing, analysts said.
The upcoming FY24 union budget, which is scheduled to be presented on February 1, comes at a crucial crossroads, said Nomura India.
"India needs to continue down the path of fiscal consolidation, but an incoming growth slowdown, lower nominal growth and political considerations – this will be the last full budget ahead of the 2024 general elections – mean uncertainty over the extent of consolidation," said Nomura India.
The government, Nomura said, will aim to balance consolidation and the need to support growth, announcing a fiscal deficit target of 5.9 per cent of GDP in FY24. This should be supported by lower subsidy spending, while ramping up capex, meaning a good quality of consolidation, it said adding that higher rural spending and some income tax tweaks are possible, but it is not pencilling in a populist budget.
ICRA expects a further boost in capital expenditure in the FY2024 Budget and continued support towards the rural economy. In addition, it believes an announcement of a big-bang feel-good social sector scheme could be funded by the cushion provided by lower expenditure on subsidies.
"In the backdrop of a global growth slowdown and geopolitical uncertainty, ICRA foresees the FY2024 Union Budget to support domestic economic growth, with a continued impetus towards infrastructure and capacity development. The Union Budget for FY2024 is likely to entail a further modest fiscal consolidation, however, providing a clear fiscal glide path for the medium term holds key to ensure GoI’s commitment in sticking to the fiscal consolidation roadmap to achieve its deficit targets," ICRA said.
What history suggests
Goldman Sachs analysed the pre-election budgets over the last 15 years to better understand changes in spending patterns. Net-net, its analysis reveals that typically there is an increase in capex allocation towards infrastructure -- mainly consisting of roads and railways and a cut in defence spending. In the case of current expenditure, an increased allocation towards rural spending or welfare schemes mainly in education and healthcare was seen, Goldman Sachs said in a note.
In FY19, capital expenditure on defence decreased from 36 per cent (FY 15-18 average) to 32 per cent, while infrastructure increased from 29 per cent (FY15-18 average) to 40 per cent of total capex. In the case of current expenditure, spending on defence declined from 15 oer cent (FY15-18 average) to 13 per cent while welfare spending increased from 8 per cent (FY 15-18 average) to 19 per cent of total current expenditure, Goldman Sachs said.
Goldman Sachs noted that in FY14, also a pre-election year, capital expenditure on defence declined from 44 per cent (FY10-13 average) to 43 per cent, while infrastructure increased from 20 per cent (FY 10-13 average) to 23 per cent of total capex. In case of current expenditure, spending on welfare marginally increased from 8.5 per cent (FY10-13 average) to 8.7 per cent while rural spending decreased from 16 per cent (FY10-13 average) to 13 per cent of total current expenditure.
In FY09, infrastructure capex increased from 16 per cent (FY05-08 average) to 19 per cent of total capex. Rural spending increased from 13 per cent (FY05-08 average) to 20 per cent.
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