A lower fiscal deficit hinging on moderation in revenue spend and realistic GDP growth and tax collection assumptions were the highlights of this interim budget.
The budget relies on a mix of capex and rural spending to bolster growth. Growth in capex is slower, but its share in GDP is higher on-year, suggesting the continued dominant role of government investment.
The return of budgetary support to rural employment and incomes after a brief hiatus will support rural demand, which has turned sluggish of late. Aggregate spending on the four key schemes — NREGA, PMAY-G, PMGSY, and PM-Kisan — is budgeted to increase 13.2% on-year in fiscal 2025, after a ~10% drop in each of the previous two fiscals.
Despite the rural focus and a pre-election setting, the budget refrains from being inflationary. This also ensures a favorable setting for monetary policy. In addition, a lower fiscal deficit and lower market borrowings will comfort government bond yields in the coming fiscal.