Vijay Kumar Gaba

Stabilization is the key (Yes Bank)

This Budget would have the daunting task of progressing towards consolidation after the covid related fiscal push. On the other hand, an eye needs to be kept on the economic growth in an atmosphere of slowing global growth and tightening domestic financial conditions. On a strategic level, the broad reforms process should continue with outlays earmarked for rural development, boosting manufacturing, employment generation, and capacity building through infrastructure. Despite this being the last Budget before general elections, we do not anticipate much in terms of tax dole outs for the masses.

For FY24E we anticipate the Budget deficit to increase to INR 17.8 tn, GFD/GDP to print at 5.9% (after attaining the 6.4% target for FY23BE). Net and gross borrowings are likely to increase in FY24E to INR 11.7 tn and 15.4 tn respectively. Despite RBI pausing after another 25bps hike in February 2023, we see a scope for yields to rise in H1FY24 towards 7.60-7.75% as centre targets to front-load borrowings in H1.

The fiscal balancing act (Emkay Equity Research)

The upcoming Union Budget will require policymakers to ensure the fiscal impulse is maximized to improve potential growth, while signaling adherence to medium-term fiscal sustainability. This will require continued financial sector reforms, better resource allocation, and funding by aggressive asset sales via functional infrastructure monetization, disinvestment, and strategic sales, among others.

We project FY24E GFD/GDP at 5.8% after 6.4% in FY23E, implying net and gross borrowing at whopping Rs12trn and Rs15.1trn, respectively, adjusted for Covid-GST comp. loans. The scope for a blatant populist budget looks bleak amid moderating tax revenue, high committed revex, and market loans.

On the revenue side, lower tax buoyancy could be partly countered by higher RBI dividend and still healthy assumption of divestment proceeds. We watch for possible changes to capital gains tax structure and new personal tax regime, extension of concessional 15% tax rate for new manufacturing units, and higher import tariffs on PLI-related products.

Expenditure focus is likely to be on rural, welfare, infrastructure, PLIs, and energy transition. Capex spend will remain significantly higher than pre-pandemic (2.9% of GDP), especially amid larger fiscal multiplier on employment and growth and still-lacking private capex.

Steady as she goes (Axis Capital)

FY24 budget on 1 February 2023 is likely to be a mundane reading showing good fiscal progress in FY23 (6.1% of GDP fiscal deficit vs. 6.4% budget) and plans to further lower the deficit in FY24 (5.7% of GDP) by rationalizing subsidies. The central government is likely to conserve resources, targeting low double-digit growth in allocation to capex, rural development, social services so that outcomes don’t suffer due to cost inflation.

Central government’s fiscal deficit is likely to fall further to 5.7% and will be on track to achieve 4.5% of GDP by FY26. The 0.4% of GDP fiscal consolidation is supported by INR 1.5 trillion drop in food and fertilizer subsidies due to merging of food subsidy under PMGKAY with NFSA and correction in global fertilizer prices. This outcome along with modest tax buoyancy (12% YoY growth) should give the government space to target low double digit spending growth in rural development and capex.

Key expectations in the budget

·         Tinkering with personal income tax slab to provide relief on real disposable income.

·         Expand scope of Production Linked Incentive (PLI) schemes and green hydrogen.

·         Bump-up allocation for rural development and social welfare to ensure outcomes don’t suffer due to cost inflation.

·         Target double digit capex with increase in capital allocation to new DFI and special long-term loan to states for capex.

·         Increase scope of asset monetization pipeline.

Capex focus to stay but rural thrust also likely (Nirmal Bang Institutional Equities)

·         We expect fiscal consolidation to be gradual and are building in a fiscal deficit of 6.2% of GDP in FY24 vs. 6.4% of GDP in FY23.

·         While we do not entirely rule out the government factoring in a slightly lower fiscal deficit of 5.9-6% of GDP for FY24, we believe that under-estimation of revenue expenditure or aggressive revenue estimates may not be palatable for markets.

·         However, we also note that in recent years, the government has erred on the side of caution with its revenue estimates. We are factoring in tax revenue growth of 11.5% for FY24, just a tad higher than our nominal GDP growth of 10.5%.

·         We expect the focus on government capex to stay and factor in 15% growth in FY24. We believe that Railways and Roads will be the largest beneficiaries of incremental government capex.

·         Overall, we factor in revenue expenditure growth of ~7.5% in FY24 over the revised estimates for FY23. Ahead of Lok Sabha elections in CY24 and given the recent rural distress, we expect higher allocation to rural schemes with focus on rural infrastructure development. This will partially offset lower fertiliser subsidies and some moderation in food subsidies.

·         We expect higher payouts under various government schemes to ease the burden of inflation for the ‘Bottom of the Pyramid’ strata. This may include higher payouts under the PM Kisan Yojana announced in the budget or during the course of FY24.

·         We expect the budget to remain focused on improving India’s competitiveness as a manufacturing hub and reducing logistics costs. Incentives for industry are likely to be oriented towards encouraging investments in clean and green technologies.

·         We are penciling in net borrowing of ~Rs12.1tn and gross borrowing of Rs16.5tn in FY24, which along with the inflation focus of RBI will keep bond yields range-bound at ~7.3% in the near term.

Trade-off between capex and consolidation (BoB Caps)

The government has reiterated its commitment to India’s fiscal glide path which targets a 4.5% fiscal deficit by FY26. We thus expect a lower figure in the FY24 budget estimate (BE) vs. the 6.4% deficit in FY23BE. Additionally, for India to become a US$ 5tn+ economy from the current ~US$ 3tn, continued momentum in the investment cycle is vital. Therefore, we believe the capex support seen in the past two budgets will continue. The FY23BE of Rs 7.5tn capex is likely to be met and should see a bump up of 10-15% to Rs 8.5tn-9tn in FY24BE, with outlays in the usual sectors of roads, highways, defence and railways. We believe the production-linked incentive (PLI) scheme could be extended to newer sectors, while affordable housing would also stay in focus.

·         Fiscal normalisation post Covid expected to remain a core theme of the FY24 budget; fiscal glide path likely to be maintained.

·         Budget could stay geared towards improving living standards of the poor while continuing to build necessary infrastructure.

·         In line with past trends, we do not expect the budget to spark a significant move in the stock market.

A tightrope walk between fiscal and elections (Philips capital)

FY24 Union Budget is likely to be a tightrope walk, considering its fiscal guidance, and the 2024 union elections. We estimate fiscal deficit for FY24 at 5.8-6.0% and FY23 at 6.2%. Muted nominal GDP growth (due to global slowdown and low deflator) will constrain tax revenue and government spending, compared to the strong pace in the last couple of years. Thus, the government’s innovation will be tested – to deliver an effective budget, encompassing capex, rural, social, policy incentives, subsidies, and tax/growth buoyancy. In case the government adopts an easy approach to the fiscal path, across-the-board expansion can be expected and delivered.

In the upcoming budget, we anticipate continued focus on PLI incentives (for new sectors), Atmanirbhar Bharat (to enhance manufacturing, exports, while managing imports), sustainability (supply/demand push towards renewable energy and alternative technologies), and infrastructure expansion (defence, railways, ports, logistics, and roads). The government wants to encourage the adoption of the new income-tax regime, thus incentivization is likely. Fiscal support to rural India will continue (adjusting for food and fertiliser subsidy); we will be watching for any meaningful stimulus (low probability considering fiscal constraints).

Fiscal deficit for FY22 should be lower than budgeted at 6.2% vs. 6.4% BE, helped by higher nominal GDP growth, tax buoyancy, and expenditure management; non-tax revenue will fall short due to low RBI dividend and disinvestment. Higher food/fertiliser/petroleum subsidy will result in revenue expenditure surpassing BE. Capex targets will be largely met. For FY23, we expect muted revenue expenditure (4-5%) growth, and decent capex growth at 7-8%. Lower-than-FY23 subsidies will generate scope for other rural and social expenditure. Our tax growth estimate is muted (5-6%) due to high base and low inflation and growth momentum. We are not very upbeat on non-tax revenue either. FY24 fiscal deficit at 5.8% offers limited scope of spending enhancement, while 6% fiscal deficit can aid expansion, catering to varied sections in an election year.