The government's interim budget might attempt to boost the rural sector amid weak growth and flailing consumption.
Finance Minister Nirmala Sitharaman is set to present the vote-on-account and the interim budget on Feb. 1, before the impending general elections scheduled later this year.
The focus remains on the government's path to fiscal consolidation, capex outlay and how much it will choose to borrow. However, boosting the rural economy, too, could remain high on the government's cards amid weak growth.
Given a weaker-than-expected monsoon in FY24 and muted Rabi sowing (+0.2% as of Jan. 19), the government, through its budget, will aim to give rural growth a boost, according to the Bank of Baroda.
Spending on rural and agriculture sectors is lagging but may see a turn-around in this budget, according to Teresa John, economist at Nirmal Bang Institutional Equities.
The rural sector faces near-term challenges such as unfavourable terms of trade, poor weather conditions, the fallout of climate change, and inflationary pressures on food and fertilisers, said Madhavi Arora, lead economist at Emkay Institutional Equities, in a note.
Spending by the Ministry of Rural Development is down 8% year-to-date in FY24, while spending by the Ministry of Agriculture remains flat. "We expect some trend reversal in the coming months, on the back of higher allocation under MGNREGA and other rural development schemes," said John.
She claimed that higher outgos under the PM Kisan Scheme will likely lead to higher spending in the agriculture sector.
"We will watch for some targeted support with regard to higher farm insurance and irrigation outlays, higher disbursements towards MGNREGA, etc.," said Emkay's Arora. To ease the purchasing cost, the government may also suggest export restrictions or sops on fertiliser purchases and farm inputs, she said.
Bank of Baroda Economist Sonal Badhan projects:
The government may increase the budget allocation for the PM Kisan Samman Nidhi scheme from Rs 60,000 crore in FY24BE to about Rs 70,000–75,000 crore in FY25.
The government might also increase the budget allocation for the MGNREGA scheme from Rs 60,000 crore in FY24BE to about Rs 80,000–85,000 crore in FY25.
Provisions under affordable housing (rural and urban) are expected to touch about Rs 1 lakh crore from about Rs 80,000 crore as per FY24BE, the note said.
Government capex is also expected to maintain a healthy pace of growth to give a nudge to private investment, Badhan said.
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