Despite slew of polls ahead, prospects of populist budget appear bleak

The scope for a blatant populist budget looks bleak amid moderating tax revenue, high committed revex, and market loans, Emkay Global Financial Services said in a report.

On the revenue side, lower tax buoyancy could be partly countered by higher RBI dividend and still-healthy assumption of divestment proceeds.

"We watch for possible changes to capital gains tax structure and new personal tax regime, extension of concessional 15% tax rate for new manufacturing units, and higher import tariffs on PLI-related products," the report said.


On the revenue front, gross tax/GDP ratio is expected to moderate to 10.9 per cent after a robust tax-buoyant FY23 across segments.

"We will watch for possible changes to the capital gains tax structure to bring uniformity among tax rates/holding periods of various asset classes and some tinkering around the new concessional tax regime and an extension of concessional 15 per cent corporate tax rate for new manufacturing units and marginally higher customs duties on PLI-related products," the report said.

Separately, higher non-tax revenue would be led by bumper RBI dividends amid FX sales.

The upcoming budget faces acute policy trade-offs between nurturing a nascent growth recovery and diminishing fiscal space with challenging debt dynamics.

The FY24 Union Budget will be presented against the backdrop of renewed uncertainties around global and domestic growth, tighter financial conditions, and the Union elections in CY24, the report said.

However, even as additional support to some vulnerable segments of the economy is warranted, a delicate balance needs to be maintained, ensuring the fiscal impulse is maximized to boost potential growth, even as policy adherence to medium-term fiscal sustainability is signaled.

This would require: (1) the expenditure-to-GDP ratio to remain healthy; and (2) front-loaded investment-focused stimulus, especially amid its larger multiplier effect on growth and employment.

This necessitates innovative reforms, better resource allocation, and possible fiscal funding by aggressive asset sales in the form of existing functional infrastructure monetization, disinvestment, and strategic sales, among others.

However, going ahead, we believe some of these windfall gains may face pressure from stake sales of the government's large holdings, which are mainly concentrated in commodity companies and the utilities sector, the report said.