- The FY25 interim Budget delivered on three themes: a) fiscal compression;
- b) continued emphasis on capex;
- c) refrain from outright populism.
- The FY25 fiscal deficit is expected to narrow to 5.1% of GDP from a revised -5.8% in the current yea
For the detailed note, please download the PDF version.
Summary:
India’s central government tabled the FY25 Interim Budget on Thursday, with the full-fledged version scheduled for mid-2024 after the general elections. The Budget delivered on three aspects, a) sticking with the fiscal consolidation path; b) emphasis on capex to improve the quality of the expenditure mix; c) refrained from outright populism. The Budget speech assumed political continuity for the incumbent government, helping to keep the reform and recovery agenda on track.
The Budget prioritised pragmatism over populism by focusing on higher capex disbursements and faster fiscal consolidation. We summarise key takeaways (supporting data tables are at the end of the report): Fiscal management - The revised FY24 deficit is estimated at 5.8% of GDP vs budgeted -5.9%. For FY25, nearly 80bp of consolidation has been assumed to -5.1% of GDP (vs market expectations of -5.3-5.4%). The FY24 fiscal deficit was also lower in absolute (rupee) terms. Affirming their commitment to the glide path, the finance minister reiterated the intention to move towards the -4.5% of GDP target in FY26. Nominal GDP is assumed at 10.5% yoy, slightly higher than our 10% assumption. For FY24, the underlying math was subject to three miss(es) and three hits. For FY25, the economic assumptions are conservative, therefore more realistic, and credible. Compared to the revised FY24 numbers, the consolidation planned for FY25 rests on a combination of compression in revenue expenditure (as % of GDP terms), coupled with a moderation expected in non-tax receipts.
A narrower deficit for FY25 also allowed for a reduction in borrowing, providing relief to the domestic debt markets. Gross borrowing was set at INR 14.13trn, notably lower than INR 15.4trn assumed in FY24, with net at INR 11.75trn vs INR 11.8trn in FY24. This surprisingly modest borrowing plan triggered kneejerk gains in the INR bonds, with yields on the benchmark 10Y index down ~10bp intraday. This will help keep a lid on cost of borrowing, lower public sector dissaving and crowd-in the private sector. With the non-inflationary Budget behind them, the RBI will be focused on domestic inflation and global developments.
To read the full report, click here to Download the PDF.
Topic
Explore more
E & S FlashThe information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.