BUDGET 2024

 

The interim budget 2024-25 was well balanced as it avoided the temptation of pre-election populist measures while continuing its focus on overall growth. India’s macroeconomic indicators stand strong, reflecting prudent policies and effective management.

Continuity on three fronts

• Fiscal consolidation: Despite the imperative of supporting growth, fiscal consolidation The fiscal deficit for next year is estimated at 5.1% of GDP, compared with 5.8% in this fiscal. With that, the central government will be 60 basis points away from the glide path of ~4.5% fiscal deficit by fiscal 2026. The reduction in the target for fiscal 2025 is attributable to lower revenue spends and robust revenue collections amid moderation in capex growth. The assumptions made by the government to arrive at the fiscal deficit target for FY25 appear to be realistic and credible.
• Capex thrust to the economy: Even as budgetary government capex growth is set to moderate to 17.7% next fiscal from 21.5% in the current one, the level of capex remains high with core infrastructure sectors seeing an increase in allocations, but at a slower pace.
• Transparency in capex: The interim budget continues to lean on budgetary support for capex rather than on public sector units (PSUs), or internal and external budgetary resources (IEBR)

— also referred to as off-budget. The share of PSU capex in total capex has been consistently falling from a peak of ~57% in fiscal 2018 to a budgeted 18.6% in fiscal 2025. This reduces the dependence on off-budget borrowings by PSUs to incur capex

 

Key Highlights

 

• There are no changes in direct, indirect tax rates
• The government withdrew income tax demands up to ₹25,000 (till 2009-10) and ₹10,000 from 2010-11 to 2014-15. This will benefit about one crore taxpayers
• Tax benefits to start-ups and investments made by sovereign wealth or pension funds extended by 1 year till March 31, 2025.
• Y. 25 Nominal GDP Growth targeted at 10.5% at ₹ 328 lakh crore
• Gross tax revenue target for FY25 hiked 46% to ₹38.31-lakh crore, from ₹34.37 lakh crore in FY24
• Direct tax collection target set at ₹21.99-lakh crore, while that of indirect tax is at ₹16.22-lakh crore
• Capital expenditure hiked 11% to ₹11.11-lakh crore
• Government Borrowings : FY25Gross Market Borrowings targeted at ₹ 13.41 lakh crore and Net Market Borrowing at ₹ 11.75 lakh crore
• Capex : FY25 Effective Capexwill be ₹ 97 lakh crore forming 4.6% of GDP
• Defence : Defence budget increased to ₹ 20 lakh core from ₹ 5.94 lakh crore.
• Housing : Pradhan Mantri Awas Yojana(Grameen) close to achieving target of 3 crore houses, additional 2 crore targeted for next 5 years. A scheme to help middle class living in rented houses to buy or build their own houses will be launched
• Disinvestment: Divestment target of ₹ 50,000 crore for FY25; FY24 target was reduced to ₹ 30,000 crore from ₹ 51,000 crore earlier
• Railways: An outlay of ₹ 55 lakh crore is provided to the Ministry of Railways for FY25 up by 5.8%.
• Energy transition and climate action : Keeping in mind the target of achieving net zero by 2070, the budget announced initiatives for promoting green energy, electric vehicles, and bio- manufacturing have been introduced
• The government will release a white paper on mismanagement of economy prior to 2014
• Govt to form high-powered panel to address population growth challenges and demographic changes
• Rooftop solarization-1 crore households will be enabled to obtain up to 300 units of free electricity per month
• Adoption of e-buses for public transport network
• Strengthening e-vehicle ecosystem by supporting manufacturing and charging
• The ₹ 1 trillion innovation fund is expected to give a big boost to local technology development and manufacturing, and help India move beyond providing high-tech services towards development of products, experts said.

 

Fixed Income Market outlook :

 

• The budget is positive from a fixed income market perspective in view of continuation of medium- term fiscal consolidation path as outlined by the government. Thus, lower market borrowings would create space for the private sector to step in for its capex requirements.
• Given the commitment to fiscal consolidation outlined by the government, Reserve Bank of India (RBI) could follow through by easing both liquidity and policy rates.
• India’s inclusion in global bond indices could potentially bring in substantial debt capital inflows, having positive impact on the markets.
• US Fed in its latest Federal Open Market Committee (FOMC) has clearly indicated rates have peaked out and as per current consensus rate cut by the Fed is likely to commence in May
• We continue to advise investors to increase duration of the Portfolio

 

Equity Market outlook :

 

• Indian Markets trading at a premium to other EMs
• Large cap segment at relatively better valuations compared to Mid/ Small cap segments
• It’s a Buy on Dips Market
• Allocate via Large cap tilted funds & Hybrid strategy like Multi-Asset and Balanced Advantage
• Conservative investors can consider Equity Savings and Conservative Hybrid Funds
• Exposure to Equity Funds should be preferred via SIP/ STP route