Fiscal consolidation and growth thrust hallmarks of Budget: Amish Mehta, Crisil

Prudent or growth-supportive? The budget's hallmark lies in how it has finessed reconciling these conflicting macroeconomic objectives. The budget for next fiscal was unveiled in the backdrop of extraordinary circumstances.
Global growth looks choppy and geopolitical tensions are running high. India faces interlocking challenges - of how to steer through a slowing global growth environment and yet stick to the path of fiscal consolidation and inflation reduction, without hurting growth and employment prospects. Medium-term commitments to a sustainable, green transition are equally demanding on the present.

By targeting a fiscal deficit of 5.9% of GDP for FY24 (vs 6.4% for FY23RE), budget has stayed on the committed glide path to below 4.5% by FY26. A lower deficit will also have a salutary effect on government's borrowing costs and is in sync with the RBI's actions to tame inflation.

Tax revenue growth is projected to slow in line with a lower nominal GDP growth, forecast at a realistic 10.5% next fiscal vs 15.4% for this fiscal. The government has held its unwavering focus on capital expenditure and infrastructure investment. It continued to push for capex through higher budgetary support, amounting to 4.5% of GDP next fiscal (vs 3.9% in FY23RE).

Over 50% of incremental capex has been allocated to just two ministries - roads and railways - which will have a significant multiplier effect in the short to medium term. Outlay to rural remains steady. The expenditure is well targeted, as gleaned from project announcements such as 100 connectivity projects, construction of 50 new airports, ₹75,000-crore spend for augmenting freight, or support for green infrastructure.

The policy certainty in the budget, along with improved balance sheets and continued high government spends will help crowd in private sector investments, which was at ₹3.3 lakh crore for the first half of this fiscal. A closer look at the incremental infrastructure spends of 11 key ministries (~₹1.66 lakh crore for FY24) shows, apart from the 50-55% to roads and railways (combined), 35% go to the ministry of petroleum and natural gas for a green transition and energy security fund, 11% is towards power and renewable energy.

Allocations for green measures have more than quadrupled to over ₹53,000 crore over this fiscal with focus on renewable energy, green hydrogen, energy transition, EVs and tax incentives to support manufacture of batteries. There are multiple small steps in energy transition. For example, the initiatives on energy storage linked to viability gap funding for battery storage investments for 4 GWh (1GW) capacity, or the ₹6,000-crore rise in allocation for efficiency-linked revamped distribution sector scheme.

The waiver of import duty on capital equipment for battery manufacturing will benefit production-linked incentive (PLI) scheme investors, driving capex of ~₹27,500 crore and resulting in capex saving of ~₹1,100 crore.

The budget also allocates ~₹11,000 crore towards manufacturing-based incentives. Nearly 70% of these are linked to PLI schemes-related incentive payouts, while less than 30% are towards incentive payments to the semiconductor-linked ecosystem. However, these allocations remain lower than Crisil's initial estimates of ₹24,000 crore for FY24, indicating a delay in implementation and invoice verification in the PLI scheme.

Given tax sops to individuals represent a foregone revenue of ~₹35,000 crore, the space for capex has had to come from reorienting spending through subsidies.

The revenue expenditure is budgeted to grow by a meagre 1.2% next fiscal, achieved mainly by trimming the subsidy Bill by ₹1.6 lakh crore to ₹4 lakh crore. The subsidy Bill will depend, in large part, on movements in global crude and fertiliser prices.

On the reforms side, amendments to the Banking Regulation Act, the Banking Companies Act and the Reserve Bank of India Act should structurally strengthen the sector and bolster stakeholder confidence, while the revamped credit guarantee scheme should improve the credit flow to MSMEs.

Net-net, the three 'Cs' of economic growth - capex, (fiscal) consolidation, climate - are weaved well here and should generate multiplier effects.

(Views are personal)