Foreign brokerage Jefferies said the approaching Lok Sabha elections imply welfare spending imperative is high as the Prime Minister Narendra Modi's campaigns on 'Modi's guarantees' and the same may be visible during the February 1 interim Budget. The recent state elections showed that income transfer policies and other welfare schemes have been key to campaigns, Jefferies said adding that even BJP has been matching some of the promises.
Jefferies said the estimated cost of such schemes has been around 150-200 basis points of GDP at the state levels. "Prior to the 2019 elections also the Budget had carried large welfare scheme in the form of income transfers to farmers," Jefferies noted.
While a large new scheme is possible ahead of 2024 polls, some popular schemes of BJP may also get expansion or extra resources to boost implementation rates such as 'Housing for All', and health insurance, Jefferies said.
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Jefferies said the government's annual cash transfer scheme of Rs 6,000 per farmer may see an increase. "Overall, we expect the social spending of government (excluding subsidies) to rise by 7-8 per cent in FY25E against a 3 per cent increase in FY24E," the broking firm said.
Jefferies said the central government's capex has surged by three times over the past five years, taking the government capex to GDP ratio to all-time-high 3.3 per cent of GDP in FY24. The incremental growth from here could turn limited, at least in FY25, as welfare spending pressures and budget consolidation takes a toll.
"We expect only about 7-8 per cent growth in government capex budget for FY25E," Jefferies said.
Jefferies said the pressure to raise welfare spending amidst a consolidating fiscal would imply a search for revenues. While it does not expect an immediate tax hike, considering elections, some post election measures such as higher capital gains tax are possible during the year.
"Disinvestment may also get ramped up post elections, partly as the government capitalizes on the sharp run in PSU stocks in sectors such as railways and defence," it said.
Post elections, Jefferies sees a risk of higher taxation and a disinvestment push too as deficit reduction gains focus.
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