Budget 2024: Motilal Oswal Predicts Fiscal Deficit Target Reduction to 5% for FY25, Increased Spending Anticipated

With the elections concluded, ministries assigned, and the 18th Lok Sabha's first session underway, market focus has shifted to upcoming policy announcements and the July Union Budget. Experts believe substantial policy changes might not be proposed during the Budget due to the complexities of coalition politics affecting ambitious reforms in agriculture, land, labor, and judiciary.

Motilal Oswal Financial Services expects policy continuity, citing the BJP's strong mandate in NDA-II and its retention of key ministries like home, defense, finance, and external affairs. Over the past decade, the BJP has crafted an image of a clean government by minimizing wasteful spending and corruption, increasing budget transparency, and maintaining fiscal prudence.

Motilal Oswal predicts the new government will likely retain its tax and non-debt capital receipt projections from the Interim Budget. The RBI's transfer of ₹2.11 lakh crore is expected to create excess receipts of about ₹1.5 lakh crore in FY25. Of this, ₹30,000-40,000 crore could reduce the fiscal deficit to 5% of GDP, from 5.1% in the Interim Budget, while the remainder could fund various expenditures.

The government may increase capex-related loans to states, improving total capital spending. The Center's budgeted ₹1.4 lakh crore for state loans and advances in FY25 could see a boost of ₹30,000-40,000 crore. Additionally, revising PM-KISAN instalments by 50% to ₹9,000 per annum could cost ₹30,000 crore.

The remaining ₹50,000 crore might be used to offer tax incentives to encourage the new tax regime and expand housing or other schemes. Despite increased spending, the government is expected to stay on its fiscal deficit consolidation path, aided by higher receipts from the RBI dividend.

Motilal Oswal suggests upcoming state elections in Maharashtra, Haryana, and Jharkhand are unlikely to influence budget allocations, as voting patterns differ between state and general elections.

The firm also notes that calls for rural economy packages, citing BJP's mixed performance in the last Lok Sabha election, might overlook factors influencing voter behavior, such as significant victories in Bihar and Madhya Pradesh.

Tax incentives for middle-class and poor Indians are unlikely to be seen as exclusive to election-bound states. The BJP's absence of large freebies in its manifesto, contrasted with the Congress's approach, reflects voter maturity. Motilal Oswal concludes that Maharashtra's assembly election results will likely be driven by state politics rather than national policies.

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