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Union Budget for FY23-24 is likely to bring back the focus on fiscal consolidation after being fiscally expansionary to support growth recovery post the Covid-19 induced pandemic. We expect fiscal deficit at 5.8% for FY24 from 6.4% as budgeted in FY23.

Overall focus will, however, continue on the growth agenda via higher capex allocation that will accelerate the investment cycle and employment. The buoyancy in tax revenues is expected to normalise in FY24 and likely be a tad above GDP growth at 11.6%.

While growth in gross tax revenue is likely to moderate, the subsidy outlay is likely to also reduce significantly. Subsidy towards food, fertiliser and petroleum, which had increased substantially in last three years to come down sharply. For FY24, it is expected at 1.3% of GDP vs. 2.2% in FY23

Key expectations from upcoming Budget:

GDP growth, tax collections to moderate but remain buoyant

* Nominal GDP to grow at around 11% in FY24 to cross | 300 lakh crore

* The growth in gross tax revenue in FY24 is likely to moderate due to higher base and slowdown in global growth but will remain healthy at 11.4% of GDP

* The free food programme, which was launched in the middle of the pandemic and continued till Q3FY23 has been discontinued. Higher global prices, which led to higher fertiliser subsidy, has fallen by ~40% leading to similar 40% reduction in subsidy outlay. Total subsidy outlay on food, fertiliser and petroleum is likely to be | 3.8 lakh crore vs. | 6.1 lakh crore in FY23

Higher outlay on capex to continue

* The allocation to capex is expected to grow 18% YoY in FY24BE led by sectors like railways, roads, defence, housing, thereby exhibiting 23.5% CAGR in capex allocation over FY19-24E

* We expect the allocation in FY24E for capex to be pegged at | 8.9 lakh crore. The allocation to capital expenditure will retain its priority at 2.9% of GDP

Focus on tax compliance, ease of doing business

* The Ease of Doing Business 2.0 initiative announced in Union Budget 2022-23 is likely to get a further boost in the Union Budget 2023-24 through measures like validation of PAN as the single business ID/Unique business identifier, digi-locker ecosystem development, further ease in GST compliance, further investment in logistics infrastructure and more work on One District One Product initiative

PLI, productive subsidy allocation to remain in focus

* Policy measures may be announced to promote Innovation in fertilisers (nano urea)

* PLI scheme to be extended to new sectors like leather, bicycle, toys, IT hardware to attract more investments

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