Budget 2024: Fiscal deficit target to be retained at 5.1% in FY25, focus on ’Viksit Bharat’ by 2047, says Morgan Stanley

The upcoming Union Budget 2024 is expected to maintain fiscal prudence along with focusing on the government’s road-map for ‘Viksit Bharat’ by 2047, according to analysts at Morgan Stanley.

Finance Minister Nirmala Sitharaman will present the full Budget for fiscal year 2024-25 on July 23, which will be the first major policy document of the new Modi 3.0 government.

“With fiscal prudence guiding the overall fiscal policy stance, we expect the focus to remain on capex expenditure over revenue expenditure and targeted social sector spending with focus on improving access to physical, social and digital infrastructure. We also expect the budget to provide focus on the government's road-map for 'Viksit Bharat' (Developed nation) by 2047,” Morgan Stanley said in a research note on Wednesday.

The foreign brokerage firm expects the government’s fiscal deficit target to be retained at 5.1% of GDP in FY25, in line with the interim budget and to be on track to attain the target of 4.5% of GDP by FY26. The government’s fiscal deficit in FY24 was 5.6% of GDP.

“The fiscal headroom has improved with a larger-than-expected transfer of surplus from the RBI, which in our view will help to maintain the momentum on capex expenditure and increase targeted welfare spending. In this context, we see the possibility of a slightly lower fiscal deficit target (tad below 5.1% of GDP) given the support from tax and non-tax revenues,” it said.

Additionally, the budget could also give a road-map for a medium-term plan for fiscal consolidation beyond FY26, it added.

“We expect the central government's fiscal deficit target to be retained at 5.1% of GDP in F2025, in line with the interim budget. Fiscal prudence, capex spending to help create jobs and targeted social sector spending are likely to be key themes,” the brokerage report said.

Stock Market Impact of Budget

Meanwhile, it noted that the impact of the Union Budget on the Indian stock market has been on a secular decline, albeit actual performance is a function of pre-budget expectations.

As of now, the market seems to be approaching the budget with exuberance and could be dealing with both volatility and a correction post budget, if history is a guide, it said.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.