Mool's FY25 Union Budget Preview

Introduction

The Union Budget is one of the most awaited policy announcements. In the past, we have seen major reforms announced in the budget. More recently, the union budget has become less significant as policy announcements are made outside the budget.  

One Month Prior/Post Nifty 50 Returns for the last 23 years

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History of Major Announcements made in Union Budgets

FY02 Union Budget

The government increased the Foreign Institutional Investment (FII) limit to 40% of total equity through a special resolution, significantly attracting foreign investment and boosting market sentiment.

FY06 Union Budget

The government raised the Foreign Direct Investment (FDI) limit in banking to 74%, encouraging greater participation from foreign investors and enhancing the sector's capital base and operational capabilities.

FY17 Union Budget

The government announced a recapitalization plan for Public Sector Undertaking (PSU) banks. In October 2017, the government committed INR 2,11,000 Cr.  through budgetary allocations, recapitalization bonds, and equity market fundraising to strengthen their balance sheets and lending capacity.

FY22 Union Budget

Prime Minister Narendra Modi announced the Gati Shakti Yojana on India's 75th Independence Day. The allocation towards this yojana was INR 100L Cr. and was announced in the union budget. This multi- year initiative is likely to create comprehensive infrastructure across India, integrating various projects to enhance connectivity, logistics, and supply chains, thereby boosting economic growth and development.

FY25 Union Budget Expectations

Fiscal Consolidation

The upcoming budget is expected to maintain a fiscal deficit target of ~5% of GDP for FY25, down from 5.6% in FY24. This reduction signals the government's commitment to fiscal prudence despite political pressures.

Unexpected Windfall

A boost came from the Reserve Bank of India's dividend of INR 2,10,000 Cr., more than double the INR 1,00,000 Cr. initially projected. This windfall could potentially increase revenue spending in the country.

Ambitious Revenue Targets

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The government has set an ambitious gross tax revenue target of INR 38,30,000 Cr.  for FY25, implying an 11.5% YoY growth. However, recent trends indicate a moderation in tax collections, with GST growth slowing to below 10% in June 2024.

Moderated Capital Expenditure

While capital expenditure has been a key growth driver in recent years, its growth  pace is expected to moderate to around 17% in FY25, down from over 25% in previous years. This adjustment reflects a shift in focus towards balancing investment and consumption-led growth. To shift towards a consumption-led growth, the government may announce a reduction in income tax rates or increase the exemption limits.

Disinvestment Target

For FY25, the government set a disinvestment target of INR 50,000 Cr. As of March 2024, expressions of interest (EoIs) for entities such as the Shipping Corporation of India Ltd, FSNL, BEML Ltd, Pawan Hans Ltd, HLL Lifecare, NMDC Steel, IDBI Bank Ltd, and Projects and Development India Ltd have been closed.

Mool's Take

The Union Budget would be inline with commitment toward fiscal prudence even as the middle class can look forward to a lowered income tax liability.