Random musings on the interim budget

The following post is contributed by @saiarav from X or Yajnavalkya from Medium

I flooded the TL with tweets on the budget today. Putting it all together in one place for future reference.

1) The big takeaway — a stunningly non-populist budget in an election year

Unlike in 2019, when the government deliberately advanced the budget date by a month so they could announce a major welfare program (Kisan DBT) and tax cuts for middle class, which added up close to Rs.1 trillion of giveaways or roughly 0.5% of GDP, this budget had almost nothing at all for any section of the voters. This is even more remarkable because A) in the last few years, state elections have seen a strong trend of rampant freebie promises and B) the economic scenario is decidedly more mixed compared to 2019 with clear signs of K-shaped recovery and economic stress in the bottom half of the population. I would have thought Modi would go in for freebies at least comparable to 2019 (0.5% of GDP would be Rs.1.7 trillion), him choosing not to do so is a measure of the supreme confidence he has regarding 2024 elections.

Of course, Modi can still surprise all of us with an unexpected 8 PM announcement with a slew of welfare measures, in which case it will very likely include a large fuel price cut.

2) The fiscal glide path looks very promising; immense possibilities

The budget estimates for 2024–25 are extremely conservative, with some of it to the point of being ridiculous. Take the 2023–24 RE for corporate taxes for example — the underestimate of growth is silly, with just two months left for year-end, it kinda makes the budgeting exercise meaningless.

Apart from tax revenue figures, I see huge potential for large divestments in 2024–25 (budgeted to be just 50K cr) given how hot the markets are.

Further, nominal growth estimates are conservative as well… a larger denominator will also support a lower fiscal deficit.

Overall, I see higher direct tax collections and divestments resulting in at least a 20–30 bps beat over the 5.1% fiscal deficit target for 2024–25. And then we get to 4.0% by 2025–26. This is all very important for the economy — a potential upgrade in our sovereign credit ratings amidst expectation of greater FII investments in the domestic bond market, in turn leading lower interest rates.

The fact that we appeared to have dodged a new freebie program which will be a permanent burden on the resources drives immense possibilities. As the fiscal deficit comes under control, the government will have much greater resources to fund new priorities, beyond road and rail.

3) Capex spend continues to be solid

The 2023–24 RE for capex spend came in lighter than BE but this is, in large part, because the government shelved the plan for equity infusion into oil OMCs.

The IEBR RE figures were sharply below estimates but this is due to FCI borrowing less funds for its operations (which is a good thing).

One sizeable miss was lower railway IEBR capex — much lower spend on the DFC…apparently because part of the project got shelved.

Meanwhile, Gadkari seems to have no problem handling any amount of capex thrown at his department, solid execution.

For 2024–25, the capex budget is a 10% increase which is pretty good considering its coming off a very strong capex allocation in 2023–24.

4) Huge capital infusion into BSNL — strategic or a waste of taxpayer’s money?

Close to Rs.2 trillion will be infused into BSNL between 2022–23 and 2024–25. This is on top the spectrum it will get for free which as an opportunity cost, if my understanding is right. My initial take was that this was a waste of money into a loss-making, inefficient PSU but then I was told …

…that the capital infusion had a major strategic objective.

5) Defense capex continues to be weak

6) Postal department — yet another case of a broken public sector biz

7) Railway finances continues to be in shambles

I wrote, perhaps two dozen tweets on railways, so I will put that up as a separate blogpost…but the key takeaway, railway finances continue to be in shambles.

8) The difficult job of fiscal management — limited spending discretion

Most of the spend is just completely non-discretionary, minimal ability to cut cost, either for political or administrative reasons.

9) Energy sector capex — disappointing

The IEBR spend by Oil PSUs or capex for atomic energy is modest — remember there was a recent announcement of significant expansion plans in nuclear capacity thru 2030. Well, the money is not forthcoming.

10) What is going on with defense pensions?!? — very low allocation

11) Hits and misses on government spending estimates for 2023–24

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