2024-25

PRE-BUDGET REPORT 2024-25

Expected Budget Emphasis
Rural Growth, Infrastructure Investment, and
Welfare Spending in FY2024-25 Union Budget
The Union Budget for FY2024-25 is set to be announced by Finance
Minister Sri Nirmala Sitharaman on Tuesday, July 23, 2024. As always,
there are high expectations from various industry patrons that this
budget will include something for them as well.

The general election outcome demonstrated a notable deviation from

the exit polls, with a decline in vote shares observed in specific rural
centers. The National Democratic Alliance (NDA) now leads the
coalition government after the Bharatiya Janata Party (BJP) failed to
secure a majority of seats.

During the pandemic, the government significantly ramped up

spending on infrastructure projects to stimulate the economy,
resulting in faster growth of government capital expenditure
compared to the overall economy from 2021 to 2024. However, in
recent years, the government has focused on reducing the budget
deficit, successfully bringing it down from 9.2% of GDP in FY21 to 5.6%
in 2024. The government aims to continue this trend, targeting a
deficit of 5.1% in FY25 and reducing it further to under 4.5% by FY26.
 Source: Budget Documents

In anticipation of elections in key states such as Maharashtra and Haryana, among others, expectations point to a budget that prioritizes
welfare spending. The Reserve Bank of India (RBI) recently transferred ₹2.11 lakh crores to the central government for FY2023-24, indicating
that increasing welfare expenditures may not necessarily lead to a reduction in capital expenditure. Overall, these funds could be used for
fiscal deficit reduction, capital expenditure, welfare spending, or a combination of these objectives.

We also anticipate that the government will use the upcoming budget to introduce significant long-term economic policy objectives for the
coming years, which may align with the Viksit Bharat strategic development plan, the initiative aims to transform India into a developed nation
by 2047, the 100th anniversary of India's independence.
Emphasis on the Growth of
Rural Employment
The government might potentially focus on measures aimed at
boosting rural growth, with recent indicators showing increased
demand in rural areas. Stakeholders are advocating for policies
that promote sustainable and inclusive development,
emphasizing rural employment.
 Expenditure for Selected Schemes

1,20,000

1,00,000

80,000

60,000

40,000

20,000

-
MGNREGA (₹ Crores) PMAY (₹ Crores) PMGSY (₹ Crores) JJM (₹ Crores)

2019-20 2020-21 2021-22 2022-23 2023-24 RE 2024-25 BE

Source: Budget Documents

To align with the India@100 vision, substantial investments are required to boost exports and generate employment in both rural and urban
regions, thereby strengthening local production and economic resilience. Increased funding for the Mahatma Gandhi National Rural
Employment Guarantee Act (MNREGA) and improvements in rural infrastructure, through schemes like Pradhan Mantri Awaas Yojana-Grameen
(PMAY-G), Pradhan Mantri Gram Sadak Yojana (PMGSY), and Jal Jeevan Mission (JJM), are deemed essential to stimulate consumer spending
and economic activity. Concurrently, job creation and infrastructure development in urban areas are crucial for driving overall demand.
Among all government schemes, the Mahatma Gandhi
National Rural Employment Guarantee Act (MGNREGA)
has historically received the largest portion of budgetary
allocation. In 2020-21, this funding surged significantly due
to heightened demand for rural employment, driven by
reverse migration during the Covid-19 pandemic. However,
since FY21, MGNREGA allocations have declined, despite the
persistent demand for work under the scheme.

It is essential to push for increased funding for MGNREGA to

address the ongoing demand for rural employment. Higher
allocation for this scheme is important to maintain rural
employment levels and ensure economic stability in these
areas.
Lifting the Rural Economy
The government provides farmers with an annual minimum income support of ₹6,000 under the PM Kisan Nidhi Scheme. Considering
the evolving agricultural landscape there is a possibility that this amount could be increased as an alternative to guaranteeing
Minimum Support Prices (MSPs) for all crops.

This potential increase aims to provide more substantial financial relief to farmers and ensure their economic stability.

Stimulating Enhancing Job Boosting Consumer

Consumption? Security? Spending?
• May increase subsidies for rural May Prioritize skill development May increase tax deductions within
housing credit (making it easier for schemes like Pradhan Mantri Kaushal the new tax structure to put more
rural residents to afford homes). Vikas Yojana (increasing money in people's pockets
employability and job opportunities). (encouraging discretionary spending
• May extend specific benefits for across the economy).
women and children (potentially
including cash transfers, food
security programs, etc.).

Overall, it is expected that the Budget might support both infrastructure and social development, fostering job creation and streamlining
business operations. These measures aim to drive long-term, inclusive economic growth, leveraging recent positive trends in rural demand
to enhance overall economic resilience and prosperity.
Involvement of the Private
Sector in Infrastructure,
Climate-Resilient
Infrastructure, Focus on Niche
Infrastructure
The Interim Budget 2024-25 provided indications of the
government's ongoing emphasis on infrastructure development. In
the February 2024 Interim Budget, Finance Minister Nirmala
Sitharaman increased infrastructure capital expenditure by
11.1% to ₹11.11 lakh crore, representing 3.4% of GDP,
demonstrating the government's commitment to the sector. While
the growth rate of capital expenditure was slower compared to
the previous year's 34%, this allocation, given the government's
fiscal constraints, underscores its continued dedication to
infrastructure investment.
In light of this, several expectations have emerged. Attracting private
sector investment is crucial due to the limited fiscal space for
government spending. Therefore, it is expected more attractive
viability gap funding and other incentives to encourage private
investments in infrastructure projects. Adjustments to viability gap
guidelines and PPP approval processes may also be considered.

Given the growing impact of climate change, there will probably be

a greater emphasis on sustainable and climate-resilient
infrastructure.

● Green corridors and circular economy projects may receive

specific funding.

● Tax breaks and subsidies may also be offered to encourage

the use of energy-saving technologies and renewable energy
solutions in infrastructure projects.

Specific segments such as tourism infrastructure and water

management, also require more attention.

● Investing in tourism infrastructure can boost local

economies and create jobs, particularly if schemes like
Swadesh Darshan receive more funding.

● Water management requires ongoing investments to

address climate change and water quality issues, with a
focus on sustainable sources, improving water quality, and
increasing operational efficiency across the entire value
chain.
 Transport Infrastructure
and Others…
Key Infrastructure Sectors Witnessed Funding in an
Interim Budget

● Ministry of Road Transport and Highways (MoRTH): ₹2.78 lakh crore

allocation reflects a moderate increase (2.8% from BE, 0.6% from RE of
FY24). This suggests potential for further adjustments.

● National Highways Authority of India (NHAI): ₹1.68 lakh crore allocation

represents a decent rise (3.9% from BE, 0.6% from RE of FY24), hinting
at the possibility of enhanced funding in the future.

Railways Lead the Charge

● The railway sector received a significant boost with ₹2.55 lakh crore
allocated, signifying a substantial increase (4.98% from FY24 RE, 5.85%
from FY24 BE). This prioritizes modernization, safety improvements, and
dedicated freight corridors.
Stable Funding for Other Sectors

● Jal Jeevan Mission (JJM): Maintains consistent funding at

₹70,162.9 crore for FY25.

● Ministry of Housing and Urban Affairs: Receives ₹77,523.59

crore, reflecting a moderate rise compared to BE (1.43%) but a
more substantial increase from RE (11.9%). This suggests
stability in funding for water and housing initiatives.

The interim budget prioritizes infrastructure development, particularly

in transportation (highways and railways), with increased allocations.
Funding for other sectors like water and housing is expected to remain
relatively stable.
Hotels Push for Infrastructure
Benefits

In the Union Budget 2023, significant measures were

introduced to bolster tourism by increasing
infrastructure investments, including expanding
airports and enhancing railways, roads, and
waterways. Despite these strides, the hospitality
sector advocates for infrastructure status to attract
greater investments, especially for expanding India's
hotel industry.

Hotels entail substantial capital investment and

have extended gestation periods, with high
operational costs predominantly fixed.
Infrastructure status would facilitate access to loans
with favourable terms, lower interest rates, and
extended repayment periods, thereby stimulating
investment in the sector.
Auto: EV Subsidies, GST Relief, and
Wider PLI Scheme

In the automobile industry, expectations include

potential extensions of subsidy schemes for electric
vehicles (EVs) and incentives for alternative fuels
like CNG, hydrogen, and hybrids. There is also a call
for rationalizing GST slabs, particularly for entry-
level two-wheelers, which remains a persistent
demand. Moreover, stakeholders anticipate an
expansion of the Production Linked Incentive (PLI)
scheme, accompanied by streamlined procedures
for fund disbursement to existing beneficiaries. The
proposal extends the PLI framework to encompass
new sectors such as chemicals, services, and
electronic components & sub-assemblies, aiming to
enhance competitiveness and domestic
manufacturing capabilities.
Something for the Real Estate?

In the context of the upcoming Union Budget, NAREDCO has

advocated for increasing the tax exemption on interest for self-
occupied property loans from ₹2 lakh to ₹5 lakh. This proposal is
aimed at stimulating housing demand amidst current challenges
of escalating housing prices and mortgage rates. Additionally,
NAREDCO has recommended extending the period of nil taxation
on unsold inventory held by developers from two years to five
years, considering market conditions.

Industry leaders have underscored the necessity for enhanced

tax incentives and policy measures to bolster the supply and
demand for affordable housing. They have suggested initiatives
such as interest subsidies and leveraging government land banks
at concessional rates to boost housing sector activity. The
budget is seen as a crucial opportunity to implement these
measures and revitalize the real estate sector, which plays a
pivotal role in stimulating economic growth and job creation
across various related industries.
 Budget at a Glance (₹ Crores)

2022-2023 2023-2024 2023-2024 2024-2025

Actuals Budget Estimates Revised Estimates Budget Estimates

Revenue Receipts 23,83,206 26,32,281 26,99,713 30,01,275
Tax Revenue (Net to Centre) 20,97,786 23,30,631 23,23,918 26,01,574
Non-Tax Revenue 2,85,421 3,01,650 3,75,795 3,99,701
Capital Receipts 18,09,951 18,70,816 17,90,773 17,64,494
Recovery of Loans 26,161 23,000 26,000 29,000
Other Receipts 46,035 61,000 30,000 50,000
Borrowings and Other Liabilities 17,37,755 17,86,816 17,34,773 16,85,494
Total Receipts 41,93,157 45,03,097 44,90,486 47,65,768
Total Expenditure 41,93,157 45,03,097 44,90,486 47,65,768
On Revenue Account 34,53,132 35,02,136 35,40,239 36,54,657
of which
Interest Payments 9,28,517 10,79,971 10,55,427 11,90,440
Grants in Aid for creation of Capital Account 3,06,264 3,69,988 3,21,190 3,85,582
On Capital Account 7,40,025 10,00,961 9,50,246 11,11,111
Effective Capital Expenditure 10,46,289 13,70,949 12,71,436 14,96,693
Revenue Deficit 10,69,926 8,69,855 8,40,527 6,53,383
Effective Revenue Deficit 7,63,662 4,99,867 5,19,337 2,67,801
Fiscal Deficit 17,37,755 17,86,816 17,34,773 16,85,494
Primary Deficit 8,09,238 7,06,845 6,79,346 4,95,054

Source: Budget Documents

 Sectors Companies to Focus

Rural/FMCG Bajaj Consumer, Nestle India, Emami, Dabur India, Jyothy Labs, Hindustan Unilever, ITC

L&T, Ramky Infra, PNC Infratech, Rites, Welspun Enterprises, Ircon International, Patel
Infrastructure
Engineering, VA Tech Wabag, Tata Power

Auto Bajaj Auto, Hero MotoCorp, TVS Motors, Mahindra & Mahindra

Real Estate NESCO, Oberoi Realty, Brigade, DLF, Keystone Realtor, Sobha, Sunteck Realty

Hospitality Lemon Tree, Mahindra Holidays, Indian Hotels, Chalet Hotels

Defence HAL, BEL, BDL, ZENTECH, DCX Systems

BFSI IndusInd bank, ICICI bank, Axis bank, SBIN, MFSL

Disclosure of Interest Name of Research Analyst : ADITYA AGARWALA
Digitally signed by ADITYA
AGARWALA Dinesh Saney Digitally signed by Dinesh Saney
Date: 2024.07.22 12:15:10 +05'30'
Date: 2024.07.22 12:14:49 +05'30'

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