Budget 2024: Divestment of PSU companies may be pushed to FY26, says RBL Bank’s Achala Jethmalani

There may be an augmented focus on initiatives such as Mahatma Gandhi National Rural Employment Guarantee (MNREGA) and PM Kisan, Jethmalani said.

The Union government is expected to keep any disinvestment plans on the backburner in the upcoming Union Budget and may look at disinvestment opportunities in the financial year 2025-26, said Achala Jethmalani, Economist, RBL Bank. The reason, Jethmalani said, is the mega dividend from the Reserve Bank of India (RBI) and other PSU companies which may lead to some revenue distribution.

Jethmalani also said that the Budget is expected to focus on capital expenditure and meeting rural demand.

On surplus liquidity with the central bank, Jethmalani said that the RBI would look at more variable rate reverse repo (VRRR) auctions and some government measures are expected to ease the situation. Edited excerpts from the interview:

Do you anticipate a reduction in the fiscal deficit figures in the upcoming Budget?

The unexpectedly higher RBI dividend has expanded fiscal capacity by 0.4 percent of GDP. This surplus will partly fund increased spending on rural sectors and bolster support to capital expenditure. Taking these factors into account, there is room to revise the fiscal deficit target down to 5 percent of GDP from the interim budget's 5.1 percent target.

Also read: Budget 2024: Microfinance industry seeks special funding, tax relief on affordable housing

Will surplus liquidity pose an inflation risk and force the RBI to change its projections?

The RBI has been maintaining tough liquidity and it has been around Rs 1 lakh crore plus or minus. They would look at more VRR and VRRR auctions to manage liquidity.

Some supply-side issues have run up inflation but it is expected that some government measures could help ease inflation and liquidity.

Which sectors will the government prioritise in the Budget announcements?

The emphasis is likely to be on capital expenditure and boosting rural demand. Allocation towards agriculture and rural sectors remained unchanged at 1.3 percent of GDP in the interim Budget, mirroring fiscal 2024. There may be an augmented focus on initiatives such as Mahatma Gandhi National Rural Employment Guarantee (MNREGA) and PM Kisan.

The Budget for FY25 is anticipated to sustain a favourable stance towards capital expenditure. Recovery in private sector capex remains uncertain and therefore, ongoing government support for capex remains crucial.

How will the Budget look at divestment activities considering the good dividend it has received from the RBI and other PSU companies?

The government is expected to keep any disinvestment plans on the back burner in the upcoming Union Budget and may look at some opportunities in the financial year 2025-26. And given the macro situation, there is a need for some kind of redistribution. And hence, the mega dividend from the RBI and PSU companies may see some revenue distribution pump up.

And will the government keep the borrowings the same in this Budget?

Borrowings are expected to remain at the levels we have seen in the past three-four fiscals. The government has kept it around Rs 11.8 lakh crore mark.