The Union Budget 2024 may continue focusing on capital expenditure (capex) to boost growth even though there could be higher allocations for the rural economy and welfare schemes, according to CareEdge (CARE Ratings).
The rating agency expects FY25 revenue expenditures to grow by 6.8 per cent, higher than the budgeted growth of 4.6 per cent. This will result in a nearly ₹750 billion higher allocation than the Interim Budget’s estimate.
“The government will likely retain capex target for FY25 at ₹11.1 trillion, up 17 per cent compared to FY24. Major schemes/ministries that can see higher allocation include MNREGA, PM Awas Yojana, PM Gram Sadak Yojana, PM Kisan Samman Nidhi and schemes related to labour-intensive MSME sectors,” said a note from CareEdge.
The rating agency also expects the government to focus on divestments that have missed their targets for five consecutive years.
CareEdge believes the government will likely stick to the FY25 target of miscellaneous capital receipts, including divestment, of ₹500 billion. However, achieving this target hinges on the government undertaking big-ticket divestments.
“The government has relied on the OFS (offer for sale) route for undertaking divestments in recent years. Issues like procedural delays, litigations by labour unions/interest groups, and pricing issues continue to slow divestments. We estimate a total divestment potential of ₹11.5 trillion (assuming the Centre retains a 51 per cent stake). However, the decision to divest will depend on market conditions and the strategic nature of the firms,” said the rating agency.
CareEdge believes that if divestment lags due to headwinds, the government will continue with its focus on asset monetisation. Plausible divestments include Shipping Corp, Pawan Hans, NMDC Steel, and CONCOR.
Four key Budget themes
CareEdge expects the Budget to be centred around four key themes: employment generation, capital expenditure with a focus on self-reliance, climate change and sustainability, and financial services.
Employment generation
The government may target the textile, hospitality, tourism, real estate, and infrastructure sectors for employment generation.
The government may introduce a PLI scheme for the textile sector for cotton-based apparel and garment manufacturing. This would also help boost our exports, said CareEdge.
CareEdge expects measures to boost the hospitality and tourism sectors by giving ‘infrastructure’ status to the hotel industry and ‘industry’ status to the travel and tourism sector. Additional measures such as incentives such as tax breaks or subsidies to promote investments in sustainable tourism will also be significantly positive for the travel and tourism sectors.
For the real estate sector, CareEdge expects increased fund allocation to PMAY/schemes focused on affordable housing.
The infrastructure sector can get a boost and raise employment generation through increased project awards across PPP (public-private partnership) and EPC (engineering, procurement and construction) modes.
Capex
CareEdge expects the government to promote a domestic manufacturing ecosystem for renewable energy through a mix of budgetary support, grants, tax breaks and PLIs.
In line with the interim budget, roads and highways could receive an increased budgetary allocation of 5-7 per cent, with a focus on deepening coastal road connectivity. The railways could receive a higher budgetary allocation of 12-15 per cent to ₹2.75 lakh crore, CareEdge said.
Climate change
To promote renewable energy, CareEdge expects an extension of the inter-state transmission system (ISTS) charge waiver beyond June 30, 2025.
It also expects favourable adjustments to the ethanol policy, particularly for the use of sugarcane juice and B-heavy molasses for ethanol production, to support the government’s goal of achieving 20 per cent ethanol blending in gasoline.
Expectations also exist for an extension of the FAME-II and EMPS 2024 schemes to accelerate the adoption of electric vehicles (EVs).
Reduction of GST rates on lithium-ion batteries will facilitate the transition towards EVs, and tax incentives for hybrid vehicles will encourage their adoption alongside EVs, said CareEdge.
Financial services
CareEdge expects the government to take steps to improve deposit inflows into the banking sector. Moreover, The government could look at diluting stakes in select public sector banks to meet listing norms.
Some public-sector general insurance companies need a capital infusion. The insurance sector needs reforms, such as a composite license, micro insurance, IND AS, etc., to achieve the target of insurance for all, said CareEdge.
Moreover, CareEdge believes norms to optimise the IBC (Insolvency and Bankruptcy Code) for speedy resolution and increased recoveries could be enhanced.
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