Union Budget 2024: Some spending boost; prefer consumption over capex theme

India Budget 2024 news: The Finance Minister Nirmala Sitharaman lowered the Gross Fiscal Deficit (GFD) target to 4.9 per cent of GDP for FY25 against 5.1 per cent set in the Interim Budget

Union Budget 2024-25 review highlights: The Union Budget 2024-25 was set against a backdrop of a) the need to stick to the fiscal glide path; b) the need to sustain the capex push as broader private capex is still weak; and c) the need for a spending boost at the lower-end of the income spectrum keeping the recent poll outcome in mind.

Amid these pulls and pushes, the Finance Minister Nirmala Sitharaman lowered the Gross Fiscal Deficit (GFD) target to 4.9 per cent of GDP for FY25 against 5.1 per cent set in the Interim Budget and 5.6 per cent in FY24 (P).

 

Fiscal math and revenue projections are quite credible with net market borrowings pegged at Rs 11.6 trillion, somewhat lower than Interim Budget. All this reinforces the government's commitment to fiscal prudence and augurs well for India's macroeconomic stability. However, from a growth standpoint, the aggregate fiscal impulse is neutral to contractionary.

Extra dividend from the Reserve Bank of India (RBI) has been partly utilised to support spending at the lower-end and partly to accelerate fiscal consolidation. Within spending, while the capex allocation stayed the same as the interim Budget, the spending in the lower income pockets of the economy including rural, agriculture, and MSMEs has gone up. Also, for the middle class, some income tax relaxation has also been provided under the new regime.

Beyond the fiscal math, the FM announced schemes to support fresh employment and skill development in manufacturing and other sectors, a new credit guarantee scheme for supporting the labour-intensive MSMEs (credit guarantee, etc), among others. Importantly, the FM also announced a few tax changes including an increase in short-term (ST) and long-term (LT) capital gains tax on equity and a hike in securities transaction tax (STT) on derivatives. On the other hand, some relaxation is provided on the income tax under the new tax regime.

From an equity markets standpoint, we don’t think the Budget would materially alter the earnings trajectory (which is likely to see moderation) in the coming year. As regards portfolio, we maintain our quality/defensive bias and prefer consumption over capex. Key

Overweight sectors are: Consumer, Private banks, insurance, IT, Pharma, and Telecom; Key Underweight sectors are: Industrials, metals and PSUs

Highlights:

Fiscal stance: GFD target lowered to 4.9% for FY25

FY25 GFD pegged at 4.9% of GDP versus 5.1% in the Interim Budget and 5.6% for FY24P. The aggregate fiscal impulse is neutral to contractionary.

Extra RBI dividend is partly utilised to support spending and rest to speed up the fiscal consolidation.

Roadmap to achieve GFD of 4.5% or below by FY26 is reiterated.

The net borrowing for FY25 is pegged at Rs 11.6 trillion, a bit lower than the interim budget.

Revenues: Gross Tax revenue (GTR) pegged at ~11% Y-o-Y; quite achievable

Broader tax projections have been largely unchanged versus Interim Budget. FY25 gross tax revenue (GTR) is projected to grow at ~11% Y-o-Y (vs 13.4% Y-o-Y in FY24) with GST is expected to rise 11% (vs 12.7% in FY24) and direct taxes are likely to go up by

~13%. These projections are quite achievable. 

Non-tax revenues for FY25 have been raised to Rs 6.2 trillion, reflecting higher RBI dividend.   

Expenditure: Total spending to grow 8.5% YoY in FY25 (up from 6% in FY24); capex projection retained; revenue spending increased

Total spending: The Centre’s total spending is projected to grow at 8.5% YoY in FY25, which is lower than the budgeted NGDP growth of 10.5%.   

Capex: The Centre’s own capex spending growth is retained at 17% YoY vs 28% in FY24. Including extra-budgetary resources (i.e. including PSUs such as NHAI, Indian Railways, and others), overall capex is projected to grow at 16% YoY versus 17% in

FY24.

Specifically, allocations for PMAY (housing) are going up by 55% YoY (versus -27% in FY24), and for roads and railways, the growth in total allocation (Budget + IEBR) is around 1-2% YoY in FY25BE versus +20%YoY in FY24.

Allocations for metros have increased by 54% YoY in FY25 versus 4% in FY24.

Revenue spending (ex-subsidies & interest) is budgeted to accelerate to 6.5% Y-o-Y versus 2.2% in FY24. Within this, the allocations for rural schemes have gone up by 10% Y-o-Y versus 1% in FY24.

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Disclaimer: Shiv Sehgal is President & Head, Nuvama Capital Markets. Views expressed are personal.