Interim Budget 2024: Big bang announcements unlikely. What Nomura, HSBC, BNP Paribas, Jefferies, others say

The forthcoming Union Budget is unlikely to offer big bang announcements, analysts said who believe all eyes would rather be on the broader policy signals on fiscal consolidation and capex spending. Analysts said while income support to farmers was introduced just prior to the general elections in 2019, any material sops are unlikely this time.

Emkay Global said the upcoming interim Budget would lack any big bang announcements but is likely to be watched for the pace of fiscal consolidation and policy priorities ahead. While economic trade-offs stay challenging amid reducing fiscal impulse for growth, policy prerogatives and spirit will not get derailed, it said.

"We expect the policy direction and prerogatives to remain largely similar to that for the recent budgets, as the trade-offs remain between nurturing growth recovery and the diminishing fiscal space with challenging debt dynamics. Besides, the improving intersection of politics and economics implies that political capital is no longer as compromised around election cycles as perceived," it said.

BNP Paribas said decisions taken in union Budgets in recent years have had limited impact on equity  markets. But any announcements with regards to changes in taxation policy,  especially on long-term capital gains (LTCG) on equities would be sentiment negative.

"One of the reasons equity has become a favoured asset class has been its relatively  attractive after-tax returns. Any increase in LTCG when valuations are already expensive  would be a negative for the markets," it said.

"Income support to farmers in the last instance was introduced just prior to the general elections. This time around, given the flurry of subsidies in various forms since Covid, including distributing food grains, and coupled with the strong mandate in recent state elections, we don't foresee the government announcing any material sops on the socio-developmental front," said Amar Ambani Executive Director at YES Securities India.

Ahead of upcoming elections, Nomura expects an enhanced focus on Gareeb (poor), Yuva (youth), Annadata (farmers) and Nari (women) – in line with the BJP’s GYAN strategy. Yet, it expects the government to set a fiscal deficit target of 5.3 per cent of GDP in FY25, by slowing capex growth to 16.5 per cent YoY FY25 against the budgeted 36 per cent in FY24, which should still keep central government capex elevated at 3.4 per cent of GDP.

"While the FY25 budget is an ‘interim’ one owing to the general elections in April-May, we find that the fiscal targets in the interim and final budgets in past two election years were largely similar. Hence, the government’s fiscal intent is likely to remain largely unchanged in the final budget (in July)," it said.

HSBC economists said tax revenues have soared and overall revenues are running 0.3 per cent of GDP higher than budgeted. This will likely fund the rise in subsidies and any special package announced on budget day, they said.

"The fiscal deficit is likely to be in line with the budgeted 5.9 per cent of GDP in FY24. Taxes are likely to grow quickly in FY25 as well (we assume tax buoyancy of 1.1). We also expect a normalisation in current expenditure post elections, and unchanged and elevated capex momentum. This is likely to lead to a fiscal deficit of 5.3 per cent in FY25, signaling that the government is committed to its fiscal consolidation path (of a 4.5 per cent deficit by FY26)," HSBC economists said.

BofA Securities said it sees Centre's fiscal deficit to consolidate further to 5.3 per cent of GDP in FY25, despite poll pressure. It argued that the current government's intent is to consolidate fiscal deficit through capital expenditure driven growth instead of expenditure compression. BofA expects the strategy to continue in FY25 union budget as well.

Jefferies, meanwhile said: "Prior to the 2019 elections also the Budget had carried large welfare scheme in the form of income transfers to farmers. Ahead of 2024 polls, while a large new scheme is possible, some popular schemes of BJP may also get expansion / extra resources to boost implementation rates such as Housing for all, health insurance etc.”

“Government's farmer's cash transfer scheme of Rs 6,000 per farmer a year may see an increase. Overall, we expect the social spending of govt. (ex subsidies) to rise by 7- per cent% in FY25E against a 3 per cent increase in FY24E," it said. This brokerage expects only about 7-8 per cent growth in government capex budget for FY25,” Jefferies said earlier this month.

 

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