Budget 2024: Welfare May Get A Boost

The newly elected government can use the excess receipts from the central bank's higher-than-anticipated transfer of Rs 2.1 lakh crore to prop up expenditure on its welfare schemes to boost demand, especially in rural areas, while pursuing capex and fiscal consolidation.

In the interim budget, presented in February this year ahead of the general elections, the government had set a fiscal deficit target of 5.1% of the GDP. Along with a hike in infra allocation, among key welfare schemes, the government increased its allocation to the Pradhan Mantri Awas Yojana while keeping its allocation to the national rural employment guarantee scheme and the PM-Kisan constant.

"We expect the revenue expenditure to be 1.4% higher than the fiscal 2025 interim budget," said Paras Jasrai, senior economic analyst at India Ratings.

The bulk of the stepped-up revenue expenditure is expected to be spent on the Ministry of Rural Development on schemes such as PM Awas Yojana, the National Livelihood Mission, MNREGA, PM Gram Sadak Yojana, and the Shyama Prasad Mukherjee Rurban Mission, according to Jasrai. The other areas where we expect a higher allocation would be agriculture, dairy, fisheries, and food processing, among others.

New welfare schemes will take longer to operationalise, said Aditi Nayar, chief economist at ICRA Ltd. As such, it might be better to dovetail existing schemes, she said. The government might choose to increase the payout on PM-Kisan or increase allocation to MNREGA, according to Nayar, who expects the government to have an additional Rs 60,000 crore to spend.

Assuming that the new government retains its tax and non-debt capital receipt projections as presented during the interim budget, a transfer of Rs 2.11 lakh crore by the RBI implies excess receipts of about Rs 1.5 lakh crore in fiscal 2025, estimates a research note by Motilal Oswal.

Of this, if the government decides to revise the installments under PM-Kisan by 50% to Rs 9,000 per annum, it would entail a cost of another Rs 30,000 crore to the exchequer, estimates the note.

Markets are likely to focus on disbursements towards the core and core of the core schemes in the upcoming budget, which include programs covering public health infrastructure, rural housing, farming communities, and a push towards sanitation as well as cleanliness, Radhika Rao, an economist at DBS Bank, said. The revised fiscal 2024 outlay trimmed allocations towards a few of these programmes, but the fiscal 2025 interim presentation increased them. Maintaining this support or increase at the margin will signal the intent to provide more broad-based support to the populace, alongside the continuation of supply-side reforms, including infra spends, she said.

Where Else Will The Government Hike Spends? 

There would also be an uptick in the capex, to Rs 11.4 lakh crore from the fiscal 2025 interim budget's Rs 11.1 lakh crore, according to Jasrai's expectations.

The government could utilise around Rs 30,000–40,000 crore to reduce the fiscal deficit to 5% of GDP, or to provide more capex-related loans to states, which would also make the Centre's total capital spending look better, according to the note by Motilal Oswal. The interim budget for FY25 allocated Rs 1.4 lakh crore as loans and advances to states and UTs, a figure that could potentially increase by Rs 30,000–40,000 crore.

The Union Government could use the remaining Rs 50,000 crore to offer more incentives to taxpayers to switch to the new tax regime and expand on housing schemes or various other schemes, it added.

Income tax concessions will also help preserve the real purchasing power of households, according to Rao. Add to this, the expansion of the PLI scheme to include labour-intensive sectors like toys, textiles & apparel, and furniture, with an emphasis on including MSMEs, will also have second-order benefits by way of higher employment needs.