Centre may hike transfers to farmers under PM Kisan, MGNREGA: Elara Capital

In the upcoming Budget, the Centre is likely to increase its revenue expenditure by increasing allocation towards the Pradhan Mantri Kisan Samman Nidhi scheme and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), Elara Capital said on Wednesday.

"We expect the government to enhance revenue spending through a hike in transfers to farmers under the PM Kisan and other revenue spending in the form of higher MGNREGA allocation," it said in a note.

It added that the Centre is likely to retain the fiscal deficit target of 5.1 per cent for 2024-25 with a possibility of a downward revision of 10 basis points.

 

Despite higher revenue expenditure, the chances of fiscal slippage are low due to the Reserve Bank of India's (RBI) record dividend of Rs 2.1 trillion. Elara said that a part of the surplus revenue, around Rs 20,000–30,000 crore, may even be transferred for capital expenditure.

It said that in the two months of April and May, the spending by the Centre has been low.

"The expenditure trends suggest much slower traction in spending during the 2024 General Elections compared to 2019," it said. "With the Final Budget expected to be passed by July-end, we expect expenditure to gain traction only gradually."

The thrust on capital expenditure has been witnessed in the first two months. Among ministries, higher capital expenditure was recorded in Railways, Roads, and Housing at 20 per cent, 21 per cent, and 11 per cent of the Budgeted Estimates respectively.

On the revenue side, Elara said that the total receipts rose around 37.8 per cent year-on-year (Y-o-Y) in the first two months as non-tax revenue almost doubled to Rs 2.5 trillion. This was primarily due to the RBI dividend.

Net tax revenue was up 14.7 per cent Y-o-Y. In the same period last year, it contracted by 9.6 per cent. The growth was led by a sharp uptick of 41.6 per cent in income tax collections.

"In contrast, corporate tax collections fell for the second consecutive month amid refunds," it said.

For the Goods and Services Tax (GST), the note said that although the pace of growth seems to have slowed in May, it is expected to improve in the coming months.

"Recollect that the number of working days in May dragged due to the General Elections and the lengthy election cycle would have led to disruption in normal business conditions," it said.