The upcoming Union Budget 2024 is anticipated to strike a balance between fiscal prudence and the government’s long-term vision of a ‘Viksit Bharat’ (Developed India) by 2047, according to analysts from Morgan Stanley.
Finance Minister Nirmala Sitharaman is set to present the full Budget for the fiscal year 2024-25 on July 23. This will be the first major policy document of the new Modi 3.0 government.
Focus on Fiscal Prudence and Infrastructure
Morgan Stanley’s research note highlights that the overall fiscal policy will be guided by fiscal prudence, with a strong emphasis on capital expenditure (capex) over revenue expenditure. The budget is expected to prioritize targeted social sector spending aimed at enhancing access to physical, social, and digital infrastructure. The road-map for achieving ‘Viksit Bharat’ by 2047 is expected to be a central theme.
The brokerage firm predicts that the government will maintain its fiscal deficit target at 5.1% of GDP for FY25, consistent with the interim budget. The aim is to stay on track to reduce the deficit to 4.5% of GDP by FY26. For FY24, the fiscal deficit stood at 5.6% of GDP.
Enhanced Fiscal Headroom
Morgan Stanley notes that the fiscal headroom has improved due to a larger-than-expected surplus transfer from the Reserve Bank of India (RBI). This is expected to sustain momentum in capex expenditure and increase targeted welfare spending. There is a possibility of a slightly lower fiscal deficit target, potentially below 5.1% of GDP, supported by robust tax and non-tax revenues. The budget may also outline a medium-term plan for fiscal consolidation beyond FY26.
Key Themes And Stock Market Impact
The central government’s fiscal deficit target is likely to remain at 5.1% of GDP for FY25, aligning with the interim budget. Key themes expected in the budget include fiscal prudence, job-creating capex spending, and targeted social sector investments.
Morgan Stanley also highlighted the declining impact of the Union Budget on the Indian stock market over time. However, the actual market performance often hinges on pre-budget expectations. The current market sentiment appears positive, but history suggests there could be volatility and corrections post-budget.
As the Union Budget 2024 approaches, all eyes are on Finance Minister Nirmala Sitharaman to deliver a balanced budget that adheres to fiscal discipline while laying down a clear path toward the ambitious goal of a ‘Viksit Bharat’ by 2047. The focus on infrastructure, social sector spending, and fiscal consolidation will be crucial in shaping India’s economic landscape in the coming years.
