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The Union Budget will focus on supporting consumption via higher allocation for the rural economy, welfare schemes and agriculture with higher allocations for schemes like PMAY and MNREGA, according to a CareEdge Ratings report released on Tuesday.

It expects a focus on manufacturing and capex to continue as the government is likely to retain its interim budget’s target of capex and an increase in PLI allocation to more labour-intensive sectors like textiles, leather footwear and toys to aid job creation.

The allocation under major PLI schemes has grown significantly in FY25. Large-scale electronics and IT hardware, automobiles and auto components and pharma have dominated most of the allocation under the PLI Scheme in the interim budget.

According to CareEdge Ratings, the government is also likely to retain the capex target for FY25 at Rs 11.1 lakh crore. 

Overall public capex grew by 15.1 per cent in FY24.  However, the FY25 interim budget saw a 5.2 per cent growth in allocation to CPSEs for capex. 

For CPSEs, capex has been led by petroleum and natural gas, power, and renewable energy.

On the revenue front, the higher-than-expected transfer from the RBI could provide an additional upside of Rs 1.25 lakh crore to the non-tax revenue compared to the budgeted amount. 

CareEdge Ratings expects gross tax revenue to grow by 11 per cent in FY25, higher than the budgeted growth of 10.6 per cent led by strong growth in direct tax collections.

It expects a total upside of Rs 1.4 lakh crore in overall revenue collection when compared to estimates of the interim budget (Rs 1.25 lakh crore in non-tax revenue plus Rs 15,000 crore from tax revenue). 

Consequently, CareEdge Ratings expect tax buoyancy at 1.04 marginally higher than budgeted buoyancy of 0.96 in FY25.

Additional revenue growth is expected to help reduce the fiscal deficit target for FY25 to 5 per cent of GDP (from the interim budget’s target of 5.1 per cent of GDP), even after accounting for higher revenue expenditure. 

CareEdge expects incremental revenue expenditure of Rs 75,000 crore compared to the Interim Budget estimate. 

CareEdge Ratings expects a higher projection of nominal GDP growth for FY25 at 10.7 per cent (as against the interim budget estimate of 10.5 per cent). 

It says that the general government debt has shot up to 83 per cent of GDP in FY24, resulting in a high-interest burden. 

With sovereign rating agencies watching the debt trajectory, the focus on fiscal consolidation should continue.

CareEdge Ratings also believes government borrowing is expected to fall, with net borrowing in the range of Rs 11.2-11.4 lakh crore (Rs 11.8 lakh crore as per Interim Budget).