Interim Union Budget - Key Highlights

The Finance Minister presented the Interim Union Budget for FY24–25, which came in better than both our market expectations. As this is an interim budget ahead of the General Elections in May 2024, expectations were relatively modest. The budget emphasized the theme of “FDI” (First Develop India) and focused on “Sabka Saath, Sabka Vikas” (inclusive growth), targeting key segments such as the poor (“Garib”), women (“Mahilayen”), youth (“Yuva”), and farmers (“Annadata”), while reinforcing the vision of Atmanirbhar Bharat (self-reliant India). It also reflected the achievements of the government over its two terms. The government’s commitment to improving the quality of expenditure and maintaining fiscal consolidation was evident in the numbers. The fiscal deficit for FY24 was revised downward to 5.8% of GDP from the earlier estimate of 5.9%, which was a positive surprise. Much of this consolidation stems from tighter control over revenue expenditure, allowing room for increased capital expenditure to support growth. The Finance Minister highlighted continued focus on capital spending in sectors such as technology, defense, and infrastructure. Capital expenditure has risen significantly from INR 4.3 lakh crore in FY21 to INR 9.5 lakh crore in FY24, with guidance for FY25 set at INR 11.11 lakh crore. On the other hand, given the significant tax changes implemented last year and the interim nature of this budget, both direct and indirect tax rates remain unchanged. As a result, the budget does not materially impact post-tax returns or financial portfolios, though this may be revisited in the full budget scheduled for July 2024.

Highlights

• The Fixed Income market has reacted positively to the revised Fiscal Deficit numbers for FY24 and to the government’s commitment to stay on the fiscal glide path.
• Fiscal deficit is expected to come down to 5.1% of GDP by FY25 and 4.5% by FY26. Yields cooled off at the long end of the curve as shown in Exhibit 2 below. The shorter end remained unchanged.
• There is no material impact on Equity or Currency markets, as is expected from a largely unchanged financial scenario.
• Being the interim budget, major tax/consumption related proposals were not expected. Arguably, recovery in rural consumption (as seen in results/commentary of FMCG companies) may be prolonged
• Positive for growth/capex outlook by public utilities and private players across the value chain of green energy ecosystem (including solar, hydrogen, battery storage, transmission, wires & cables).