Unveiling the Fiscal Future: Exploring Expectations for Budget 2024

India’s upcoming budget, presented in February 2024, will be coming in at a crucial time, i.e. just before the Lok Sabha election 2024. The short-term and long-term impact of the decisions taken in this budget will be discussed at length in the media, not only for economic speculation, but also political back and forth. Hence, the schemes announced in Budget 2024 and the overall financial strategy are likely to have a major impact on the market sentiment in India.

Serving as a temporary estimate of government spending needs before the general elections, it may not unveil grand pronouncements. Nevertheless, amidst this backdrop of political transition, several crucial themes and sectoral expectations remain in focus.

1. Fiscal Discipline and Growth Aspirations

The Narendra Modi government remains steadfast in its pursuit of fiscal consolidation, aiming to achieve a 4.5% of GDP fiscal deficit by FY 2026. However, some economists predict a potential overshoot of up to 5.9% for FY 2024, citing potentially lower nominal GDP and higher revenue expenditures than expected. Despite surpassing budgeted revenue spending by nearly ₹2 lakh crore, robust tax receipts offer promising signals.

2. Beyond Numbers: Weaving Vision 2047 into the Fabric of the Budget

This budget may break tradition by weaving elements of the ambitious Vision 2047 plan into its allocations. Expect to see long-term economic narratives integrated into budgetary decisions, offering glimpses into the government’s future vision for India.

3. Prioritising Social Welfare and Inclusivity

The brokerage firm expects social safety nets to be extended, particularly benefiting the most vulnerable and marginalised sections of society. Comprehensive insurance coverage, increased support for women, and potential boosts for affordable housing schemes seem likely on the horizon.

4. Seeding Growth across Sectors

To bolster the manufacturing sector and generate employment, expanding the Production-Linked Incentive (PLI) scheme appears to be on the cards. The inclusion of sectors like garments, jewellery, and handicrafts holds significant promise. Infrastructure development will also be in focus, with railways poised for the highest spending increase (nearly 40% YoY). Expect sustained commitment to agriculture and clean technologies, with initiatives like FAME subsidies potentially receiving extended support.

5. Issues with Disinvestment

India is likely to miss the disinvestment target of FY 2024, given that it has so far collected divestment receipts of only ₹15,000 crore in FY 2024 against the budgeted ₹61,000 crore. The pace of divestments could pick up after the Lok Sabha elections in FY 2025.

How To Interpret India’s Budget 2024 as an Investor?

The exact approach to interpreting the Budget 2024 should be based on your own research and experience. However, you can use the following framework as something to start off with:

1. Find the sectors that are receiving the overall highest share of support, both economic and regulatory.
2. Also find the sectors that are receiving higher support or attention than before, i.e. their growth trajectory is about to get steeper.
3. Finally, find the sectors that the government expects to boom and is making reasonable regulations for that will help in liberalising the sector.
4. Now, out of the 3 aforementioned categories of sectors, find the top 2 to 3 listed companies in each that enjoy the highest market share, are capital efficient and have their finances in order. In other words, find those companies that are poised to outcompete their peers within these growing sectors.
5. You can also look for companies within the value chain of a sector that enjoy the highest margins. For example, assume that the automobile sector in a country is about to grow. Also, assume that within the value chain of the finished automobile, the microchip or the engine contributes the most to the cost and also commands the highest margins, as compared to the paint and the tyres. 
6. Now that you have the top companies within the value chain of a growing market, you can perform the remaining due diligence, e.g. check for management quality, regulatory issues, Ratio of Customer Acquisition Cost to Customer Lifetime Value, etc. and thereafter, invest in those companies.

Final Words

While the interim budget might not bring earth-shattering reforms, it holds the power to set the stage for India’s economic trajectory post-election. Careful analysis of fiscal responsibility, targeted support for vulnerable groups, and investments in key sectors will be crucial indicators of the government’s priorities in the near future. The upcoming budget, though temporary, offers a glimpse into the economic story India intends to tell in the years to come.

To get the Budget 2024 live update, click here.