Budget 2024: Govt prioritised fiscal prudence over populist spending, say Economists

The Government stuck to the protocol of delivering no major big bang announcements in an interim budget. It promised to continue its focus on infrastructure building – setting an allocation of 11.1 lakh crore rupees for 2024-25 -- along with targeting inclusive growth.

The Government continued to remain fiscally prudent, estimating the fiscal deficit at 5.8% of GDP in 2023-24 – lower than the budgeted 5.9% of GDP. Moreover, it reduced the fiscal deficit target to 5.1% of GDP for 2024-25, in an effort to achieve the medium-term target of 4.5% by 2025-26.

The finance minister delivered a balanced announcement with an account of the Government's progress over the last few years while also laying down the roadmap ahead. The fiscal target for 2024-25 translates into a lower gross market borrowing figure than expected and is likely to be positive for the bond market, said HDFC Bank's Chief Economist, Abheek Barua.

The Budget prioritised pragmatism over populism by focusing on higher capex disbursements and faster fiscal consolidation. The math not only projected a better than budgeted deficit target for the current year FY24 (year ending March 2024) but also pegged the FY25 goalpost at a narrower -5.1% of GDP (vs expectations of -5.3-5.4%), added Radhika Rao, Executive Director and Senior Economist, DBS Bank on a similar line.

"By extension, gross and net borrowings are much lower than FY24 providing significant relief to the domestic debt markets, which will help keep a lid on cost of borrowing and crowd-in the private sector. Despite the welfare focus on women, youth, poor as well as farming community, the government refrained from outright populism, whilst maintaining a continued emphasis on capex," she said.

FY25 gross market borrowing is pegged at Rs 14.13 lakh crore, lesser compared to current fiscal year budgeted borrowing of 17.86 lakh crore.

According to Indranil Pan, Chief Economist, YES BANK, this budget lacks major announcements but clearly elucidates the government's intention to promote growth through inclusive policies.

Also read: Union Budget 2024 Highlights: Top announcements of FM Sitharaman's Budget 2024

"In this sense, one should expect continuity from the government if re-elected. Another appealing aspect is the roadmap laid out by the Finance Minister to achieve the 4.5% fiscal deficit to GDP target by FY26. Accordingly, the 5.1% target for FY25 represents a significant step towards achieving the 4.5% goal. At the same time, the FM continues to take responsibility for leading capital expenditures," he said.

Impact on market

Lesser borrowing by the government will be beneficial for the private sector and households as it will put more money on the table for them. The India 10 Year Bond Yields slipped below the 7.1% triggering a sharp rally in the bond markets. This will also pave the way for RBI to start cutting rates sooner compared to other economies, said Apurva Sheth, Head of Market Perspectives & Research, Samco Securities.

"As a chain reaction to this, the profitability of India's Corporate sector will increase due to lower interest cost. Resultantly, Indian stocks will become more attractive valuation wise, attracting foreign investors to Indian market and companies," he added.

The reduced borrowings will also have an impact on the banking stocks positively as Banks have a lot of bonds and we may see EPS of banks rising by 31st March 2024, Raj Vyas, VP of Research, Teji Mandi highlighted.

"Largely in terms of positivity for stock markets, the capex plan at around 12% higher so over a 35% jump in capex in the current and now 11-12% jump next year will be treated as positive and the government here seems to be pushing this to private players as well which reflect much stronger," he said.

Also Read: FM bullish on women empowerment through entrepreneurship, schemes like 'Lakhpati Didi'

Despite several positive aspects, there is a slight sense of disappointment regarding anticipated tax relief and a boost in consumer spending, particularly in light of the approaching general election. This sentiment may have a marginal adverse effect on consumer stocks, experts added.