Fiscal needs will limit populist measures
Central government has to aim for a sharp fiscal consolidation
image for illustrative purpose
Some Populist Schemes Expected
l Consolidation needs will restrict space for large populist measures
l But upcoming general elections may lead to some populist schemes
l Agricultural sector weak in the past few quarters, so some measures likely
l Can expect incentives to boost residential or commercial property market
New Delhi: The FY2025 interim budget could additionally include few populist measures, while targeting slower capex growth, sharper-than-usual fiscal consolidation and keeping borrowings in check, a report said.
"While we assume a higher allocation for PM-KISAN (Rs 8,000 per eligible farmer versus Rs 6,000 currently), the government could additionally allocate Rs 600-700 bn by budgeting higher tax revenue growth and divestments. However, consolidation needs will restrict space for large populist measures," the report by Kotak Institutional Equities said.
Over the medium term, the Central government has to aim for a sharp fiscal consolidation, while improving spending quality amid large committed expenditures, it added. "It might be tempting to put fiscal consolidation on the back burner, given expansionary fiscal policies globally. However, India’s fiscal metrics remain adverse compared with other major economies. Debt sustainability is not a concern, but controlling debt/deficit would help restrict burgeoning interest payments and borrowings. Historically, fiscal consolidation has been led by high real GDP growth phases."
Since the cut in corporate income tax rate in September 2019, there has been a continuous demand to reduce personal income tax rates as well. The new tax regime can be made more attractive by either increasing the exemption income limit, raising the income tax rebate under Section 87A or by reducing the highest surcharge rate, as per a report by Motilal Oswal Financial Services.
The upcoming general elections may lead to some populist schemes to be included in the Interim Budget 2024-25, it said.
It is widely known that the agricultural sector has been weak in the past few quarters. Therefore, any populist measures directed to the farm economy will be keenly watched. It may include the expansion of the PM KISAN scheme by as much as 50 per cent to Rs 9,000 per annum or increased benefits in the form of insurance scheme or higher MGNREGA allocation which is a demand-driven programme, the report said. Some incentives to further boost the residential or commercial property market are also areas to watch out for, it noted. Overall, India’s economic growth has been much better than anticipated in CY23/FY24, and thus, there is no major need to provide support to consumption or investment spending, it added.
