Interim Budget: A path of fiscal prudence towards Viksit Bharat by 2047

The finance minister stuck to the norm of an interim Budget being a summarisation of achievements and outlining the government's intent for the next term. The key highlight of the interim budget is a commitment to avoiding the lure of populist announcements before the elections and sticking to the fiscal consolidation roadmap. The government aims to overachieve the fiscal deficit target by 10 basis points in FY24 with it being pegged at 5.8 per cent of the gross domestic product (GDP). It has also set an aggressive target of 5.1 per cent fiscal deficit in FY25, sticking to the roadmap of bringing it down to 4.5 per cent by FY26.

The fiscal prudence has led to an estimate of the gross borrowings by the government to finance the deficit at INR 14.11 trillion, which is lower than the FY24 borrowing number. This is going to be a big positive by way of containing inflation expectations as well as bringing down borrowing costs for the private sector. This is being done in a year when there will be international money flowing into India bond markets from June onwards owing to inclusion in the JPM Emerging Markets bond index. This is likely to bring down bond yields significantly. The lower borrowing costs will coincide with the likely resumption of consumption revival in the second half of FY25, and this will aid the private capex sentiment.

The capital expenditure (capex) spending for FY24 has been revised downwards to INR 9.5 trillion. This pegs the capex allocation next year at INR 11.1 trillion – around 17 per cent higher than the current year. This seems a prudent budgeting as the absorption capacity for capex in a country takes time to build with construction capacity being strained.

The government has outlined a vision for Viksit Bharat by 2047, with GDP being given a new connotation of ‘Governance, Development and Performance’. The Indian economy has seen unprecedented growth in foreign direct investment (FDI) and the finance minister has termed FDI as ‘First Developed India’, possibly hinting at more indigenisation and Aatmanirbharta. There is significant emphasis on research and development, with an INR 1 trillion fund being established to provide low-cost long-tenure loans for investments in this area by the private sector. This is laudable as with technological disruptions, a country can progress with homegrown innovations.

In summary, this is a fiscally prudent interim budget that should help in containing inflation from the fiscal side, bring down borrowing costs for the private sector and continue to support the economy through government capex. We will now await the full budget, expecting it to stick to fiscal prudence and the tango to be played by the monetary policy around June with possible policy rate cuts that will further augment the growth momentum through private capex and consumption. All of this will help India to continue to be the bright spot in the global economic scenario.

(Ranen Banerjee is Partner and Leader- Economic Advisory Services, PwC India)

Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper