Budget 2025 Preview - Spending Growth Likely To Be Increased In FY25: Motilal Oswal

Motilal Oswal Report

From the Budget 2025 perspective, we believe that the new government will largely retain its tax and non-debt capital receipt (including disinvestment) projections as presented during the Interim Budget in Feb-24. If so, a transfer of Rs 2.11 trillion by the RBI implies excess receipts of about Rs 1.5 trillion in FY25. A large part of these additional receipts, we believe, would be spent under various heads, while a small portion could be used to reduce the fiscal deficit.

Rs 300-400 billion could be utilized to reduce the fiscal deficit to 5% of GDP, from the 5.1% of GDP announced in the Interim Budget.

One of the ways to spend additional resources could be to provide more capex-related loans to states, which would also make the Center’s total capital spending (including loans and advances) look better. The Center budgeted Rs 1.4 trillion to states and UTs as loans and advances in FY25 in the Interim Budget, which could be increased by Rs 300-400 billion.

Similarly, if the government decides to revise the installments under PM-KISAN by 50% to Rs 9,000 per annum, it would entail the cost of another Rs 300 billion to the exchequer.

The remaining Rs 500 billion could be used by the Union Government to provide some more incentives to the taxpayers to shift to the new tax regime and to expand on housing schemes or various other schemes.  Overall, we do not expect the government to divert from its fiscal deficit consolidation path while improving the quality of fiscal spending. It is, however, very likely that fiscal spending could be increased (versus Feb-24 budget), due to higher receipts led by the RBI dividend.

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