Moneycontrol Pro Panorama | Budget Special: Keep consolidating and carry on

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Dear Reader,

Interim budgets are never bold, but they can be pragmatic. Unlike the previous interim budget that was presented in 2019, finance minister Nirmala Sitharaman chose to be pithy and short in both content and measures for this one. Within the limits, she packed enough to boost market sentiment by simply sticking to the script on fiscal prudence.

The fiscal deficit for 2024-25 was pegged at 5.1 percent of gross domestic product (GDP), much lower than the revised estimate of 5.8 percent of GDP for the current fiscal year. With this, Sitharaman has shown that the path to a fiscal deficit below 4.5 percent of GDP by 2025-26 was not wishful thinking. Credit should be given to the government for avoiding the temptations of populism in an election year as well as giving credibility to the fiscal consolidation path, where India’s track record is rather chequered.

The government achieved two goals with one deficit reduction. It made the bond market happy, which translates to lower borrowing costs for companies, and a leg-up for banking profits. We write about these here and here.
That does not mean the current finance minister’s math is not up for scrutiny. Note that this is just the interim budget, and a full budget would be presented by the elected government in July. Nevertheless, some in the market are worried that the 11 percent step-up in capital expenditure may make the government sweat a little to bring down its deficit. What's more, the target also appears somewhat aggressive in the wake of deceleration in nominal GDP growth. The government has assumed a growth of 10.5 percent as basis for its budget math. Most analysts believe nominal GDP growth to be around the same levels. But there are enough wars around the world to upset this assumption through the trade channel.

The government may be right in ignoring populism ahead of polls, but an election means a compulsion to address every segment of the economy.

The budget had enough measures to boost infrastructure as the finance minister vowed to continue with the focus on capex and building infrastructure. My colleague Vatsala Kamat details what the infrastructure measures mean for companies involved and the economy in general in her piece here. The budget also packed in goodies for the housing sector, touched upon the plight of middle class citizens and their affordable housing needs. It even had a generous funding option for technological innovation and research, a segment populated by start-ups.

Sitharaman also talked about agriculture and the rural economy despite keeping allocations largely unchanged. Subsidies have been cut but the budget increased access to funding through credit to key sections in rural areas such as self-help groups, and crop loans to farmers. Our piece on agriculture details what the budget entails here. The goal seems to be more towards implementing existing schemes and getting more bang for the buck.

While the budget ticked all boxes, it missed one critical piece of the growth puzzle: consumption. Private consumption has been languishing this year and is likely to be a drag on economic growth. In her quest for consolidation, Sitharaman has steered clear of putting money into the pockets of citizens. Allocations to the food subsidy programme were lower, a blow to the rural economy. Tax proposals were unchanged.

The mantra seems to be more engagement and empowerment by giving employment opportunities through capex than entitlement through subsidies and direct benefits.

The bond market has rejoiced in the fiscal prudence, equity investors are yet to bite into buoyant sentiment. That is because a bigger trigger for them is the national elections. After all, the next elected government will present the full budget in July which gives space for additional measures. For now, the finance minister has sought to keep consolidating and carry on.

Here is a list of articles published so far on the Budget to give you insights into the key issues, announcements and what impact they will have. We have more in the works and our research team is hard at work to bring you investing insights. We will be sending you a full list of links later tonight, so do keep a lookout for it. Happy reading!

Stock gainers, losers after interim Budget 2024

Seven key takeaways from the Interim Budget 2024

No direct boost to consumption in Budget, focus shifts to inflation

Banks' profits get a strong leg-up from India Budget

Cheered by Budget, bond market now needs friendly RBI policy

Signalling continuity of reforms in Budget should give investors comfort

Interim Budget 2024 lays out a long-term road map

A handy reckoner to the best of MC Pro on Budget 2024

The Story between Budgets: Nirmala Sitharaman's remarkable fiscal achievements

Do Budgets steer markets’ fortunes for long?

Budget Snapshot: Renewable energy a focus area for government spending

Stock markets will shift focus to global events, as the interim budget stuck to the script

Technical Picks: SBI, ITC, Nifty and MCX(These are published every trading day before markets open and can be read on the app)

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Aparna Iyer
Moneycontrol Pro