Interim Budget can make India the world’s third-largest economy

India is expected to sustain its growth momentum into FY25 with a policy push that is both inclusive and prosperous in the context of incremental progressive steps towards India@100

January 19, 2024

Following the polls in April-May 2024, the regular Budget, scheduled around mid-2024, will play a pivotal role

Administrative measures, such as export restrictions or incentives for fertilizer purchases, could also be explored to boost purchasing power

Wider progressive steps to promote indigenous manufacturing activity are anticipated, reinforcing the government's commitment to economic development

A continued focus on capital expenditure, with the central government leading the way in revival over the past five years

As India navigates the challenges posed by a robust dollar and mature market yields, the country is poised for continued growth in FY25. The upcoming Budget presentation in early February is expected to underscore an “inclusive and prosperous” policy approach, aligning with the incremental progress outlined in the India@100 roadmap over the next two decades since independence.

Election Year Dynamics and Budgetary Approaches

In an election year, the government typically presents a vote-on-account through an interim Budget to secure approvals for essential expenditures. Following the polls in April-May 2024, the regular Budget, scheduled around mid-2024, will play a pivotal role. The interim edition may introduce pro-demand and growth measures, building on past practices seen in the 2019 elections.

Proposed Measures for Growth

Anticipated measures in the FY25 Budget will likely focus on addressing near-term challenges the rural and farming community faces. Initiatives may include targeted support through transfers to offset weather-induced output losses, increased farm insurance outlays, and enhancements to rural employment schemes. Administrative measures, such as export restrictions or incentives for fertilizer purchases, could also be explored to boost purchasing power.

Structural Emphasis on Growth

From a structural perspective, the FY25 Budget is expected to emphasise two key areas. Firstly, a continued focus on capital expenditure, with the central government leading the way in revival over the past five years. Secondly, wider progressive steps to promote indigenous manufacturing activity are anticipated, reinforcing the government’s commitment to economic development.

Fiscal Rationalization and Deficit Management

The government will likely prioritise fiscal rationalisation, with the fiscal deficit narrowing from the pandemic-induced spike in FY21 to targeted levels for FY22 and beyond. Strong direct and indirect tax collections contribute to fiscal stability despite spending pressures. The FY24 target of -5.9% of GDP is expected to be met, and future consolidation may aim for (-5.2) to (-5.4)% of GDP en route to the FY26 goal of (-4.5)%.

Infrastructure Development and Financing Strategies

The interim Budget might signal consolidation efforts, and road construction, railways, and the National Highway Authority of India (NHAI) are expected to be prioritised. Long-term interest-free capex loans to states may persist, while bond borrowings, possibly elevated, could be absorbed by global benchmark bond indices and committed domestic buyers.

The upcoming Budget aims to balance short-term priorities and incremental steps to propel growth, aligning with the nation’s longer-term objectives of achieving a US$ 5 trillion nominal GDP and reaching the US$ 10 trillion mark.

Source: Economic Times

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