Interim Budget FY -25 : Key takeaways

Sanjay Sinha

The theme of the interim budget is “continuation on the path of fiscal consolidation”.

The budget underpins govt’s resolve and commitment to control expenditure and relying on higher revenue. Full credit is due to the FM & her team under the leadership of PM Modi for managing country’s finance well, that too in the aftermath of the disruptions caused by the once in a century pandemic, and the supply chain instability due to ongoing conflict between Russia and Ukraine for nearly 2 years compounded further by Israel and Hamas standoff.
The Fiscal deficit has improved significantly from as high as 9.2% in FY21, to 6.4% (FY23), easing further to 5.8% ( FY 24 RE) and now ( FY25) is estimated at 5.1% .

2. Focus on capital expenditure stays without sacrificing the fiscal consolidation glide path.

The interim budget provides for expenditure on capital account at Rs.11.11 Lakh crore (6.4% of Nominal GDP) with revenue deficit pegged at Rs. 6.53 Lac crore. This when compared with the Capex of Rs.5.9 Lac crore in FY22 (6.2% ) and the revenue deficit of Rs. 10.88 Lac crore (FY 22 ) brings to fore that expenditure by the govt is to create assets to support revenue generation in the long term.

Besides, the stay put of expenditure on capital account will help crowd in Pvt Sector investments as Pvt Sectors’ capacity utilisation has gone up to ~72%. Market estimates that the inclusion of Indian G-Sec in JP Market Govt Bond Index (with weightage of 10%) starting June 2024 will free up domestic funding sources for Pvt Sectors at affordable rates.

3.True to the spirit of interim budget: without tweaking the taxation slabs, Rs.22,000 crore of reliefs (these are disputed tax amount for more than 10 years ) will be passed on to the taxpayers where disputes are ranging between Rs.10,000 to Rs.25,000. It is a very commendable gesture towards the tax payers.

4. Provision for Rs. 1 Lakh crore corpus to support R&D by Pvt. Sectors with almost nil interest rate and a long gestation period of loan ( up to 50 years) – a good move to ride on technology innovation in the AI & digital ecosystem.

5.The highest ever Defence budget ( Rs.6.21 Lac crore), with a capital outlay at Rs1.72 Lac crore and provision for non -salary revenue expenditure of Rs.92,000 crore by Armed Forces is govt’s continued no-compromise approach towards national security.

6. It is not a political budget in an election year, if we look at the amounts provided for many of the welfare schemes (PM Kishan Scheme, NAREGA, etc.) – allocations at the same level or slightly lower. Such schemes do catch voters’ interests.

7. Most importantly, it appears that the govt is building a case for revisiting the country’s sovereign ratings (which is at the lowest investment grade ) by global rating agencies . Overall Public debt is estimated to come down to 52% of the GDP. The white paper on Economy Management in a decade – pre 2014 & post 2014 seems to be a step in that direction.

It can’t be denied that this move will not serve any political purpose in an election year. But the underlying message through the white paper, the govt wants to establish is its credibility over its prudent fiscal policies it has pursued in this decade (2014-2024) vis-a-vis those followed in the previous decade.

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