Fiscal headroom should be used to spend on social sector, says Ficci

The economists said the fiscal deficit target for 2024-25 could be slightly lowered, from the 5.1 per cent estimate laid out in the Interim Budget earlier this year

The government should use the fiscal headroom, achieved due to the Reserve Bank of India (RBI) dividend of Rs 2.11 trillion, to increase the spend on social sector schemes to support the rural economy, the Economic Outlook Survey released by the Federation of Indian Chambers of Commerce and Industries (Ficci) said on Thursday.

The Ficci economists said the fiscal deficit target for 2024-25 could be slightly lowered, from the 5.1 per cent estimate laid out in the Interim Budget earlier this year. 

The government had set the FY25 fiscal deficit target at 5.1 per cent or Rs 16.85 trillion of the GDP and revised the FY24 target to 5.8 per cent from the earlier projection of 5.9 per cent. The fiscal deficit narrowed to 5.6 per cent in FY24. 

The survey, while projecting annual median GDP growth of India for FY25 at 7 per cent said the upcoming Budget, is expected to introduce comprehensive measures to boost employment and enhance workforce capabilities such as employment-linked incentive scheme, the urban version of the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS). 

The economists said the agricultural sector is expected to receive significant attention. The survey has projected the agriculture sector’s growth to improve to 3.7 per cent this financial year from 1.4 per cent in 2023-24. 

The survey drew responses from 30 Ficci economists representing the industry, banking, and financial services sectors.

Economists have proposed the creation of reform-linked incentives for states to implement agricultural reforms and improve efficiency.

Implementing adaptive measures against climate effects, improving storage infrastructure, and the establishment of a price forecasting mechanism for non-MSP crops are among the other suggestions made by economists. 

On the taxation front, the economists are expecting potential revisions in tax rates to boost disposable income and stimulate consumption, particularly for individuals at the lower income brackets. 

“Further, it was suggested that enhancing limits under Section 80C and similar provisions could encourage long-term savings and investment,” the survey said.

Economists expect the Budget focus to be on creating a more conducive environment for manufacturing growth through the expansion of the production-linked incentive scheme to include more labour-intensive sectors and component manufacturing. 

The introduction of interest subvention for middle-class housing schemes, potentially administered through agencies like the Housing and Urban Development Corporation Ltd (Hudco), was also a suggestion from some of the participants, the survey added.

The median forecast for CPI-based inflation has been put at 4.5 per cent for 2023-24, with a minimum and maximum range of 4.4 per cent and 5 per cent respectively.

“While food prices remain sticky with inflation inching up in cereals, fruits, and milk, the survey participants expect the easing of prices in the second quarter with kharif output reaching the market,” the survey said.  

According to the survey results, the median GDP growth is estimated at 6.8 per cent and 7.2 per cent in Q1 2024-25 and Q2 2024-25 respectively.

On RBI’s policy action, economists were of the view that a cut in the repo rate is expected only in the latter half of the current financial year as RBI is expected to continue with its cautious approach keeping a close watch on the inflation trajectory.

The policy repo rate is forecasted to moderate to 6 per cent by the end of the financial year 2024-25.

Budget expectations 
 

Employment-linked incentive scheme 

Urban version of the MGNREGS

Revisions in tax rates to boost disposable income 

Focus on manufacturing growth through expansion of PLI