Union Budget 2024-25 Reactions: CRISIL Limited
Quote on Economy from Dipti Deshpande, Principal Economist, CRISIL Limited
“The budget responsibly deploys the higher revenues (tax and non-tax revenues) on reducing the fiscal deficit, sustaining spending on investments and making way for higher spending to support segments of the economy that require support. Overall, the quality of spending remains intact despite the slight tilt towards revenue spending.
A lower fiscal deficit and non-inflationary nature of spending are inflation-positive, while lower market borrowings will help temper yields. We expect the 10-year government bond yields to average 6.8% by March 2025, from 7% in March 2024. On the back of a normal monsoon and cooling food inflation, we expect headline consumer price inflation to soften to 4.5% average this fiscal from 5.4% in the last. We maintain our GDP growth forecast at 6.8% for fiscal 2025 – a moderation from 8.2% in fiscal 2024 led by tighter lending conditions.”
Quote on Shrimp from Rahul Guha, Director, CRISIL Ratings
The shrimp processing sector will benefit from two specific announcements. First, the government support for marketing and financing shrimp farming through Nabard will improve the supply chain, reduce time to exports and, hence, lower the cost of production for processors and farmers. Second, reduction in import duties on certain brood stock to 5% will reduce costs for the farmers and, in turn, processors. This will make the cost structure leaner and enhance productivity over the medium term, giving shrimp exporters a boost.”
Quote on Energy from Rahul Prithiani, Senior Director & Global Head, Energy and Sustailability, Consulting, CRISIL Market Intelligence and Analytics
“The full budget for this fiscal moves the needle on the development of energy transition pathways and the shift to emission-based targets for the hard-to-abate sectors. This will drive investments in sustainable technologies and lay the framework for the development of the carbon market. Additionally, reduction in basic customs duty on battery minerals, focus on mining critical minerals, impending pumped storage policy for round-the-clock power, and taxonomy for climate finance indicate a clear push towards de-carbonisation..”
Quote on real estate from Gautam Shahi, Director, CRISIL Ratings
For the real estate sector, the impact of changes in taxation is expected to be mixed. On the one hand, the reduction in the long-term capital gains tax rate from 20% to 12.5% should boost investments over the near to medium term. On the other, the removal of indexation benefit will increase the tax incidence on property sale, especially for older properties.
Further, the Centre’s move to persuade state governments to reduce stamp duties, especially for women home-owners, can have a positive impact.
On affordable housing, the move to provide additional one crore housing units to urban poor and middle-class families under the Pradhan Mantri Awas Yojana (PMAY) scheme, with an incremental budgetary allocation of Rs 2.2 lakh crore over the next 5 years, will sustain the growth momentum in this segment.
Quote on Space Market from Pushan Sharma, Director- Research at CRISIL Market Intelligence and Analytics
The Union Budget has introduced a Rs 1,000 crore venture capital fund aimed at expanding the space market five-fold over the next decade. The country’s Rs 6,700 crore space market has seen startup engagement skyrocketing from just one in 2012 to 189 in 2023 as entrepreneurs started looking beyond traditional sectors to include satellite manufacturing and development of reusable launch vehicles. The number of use cases for the space sector has also increased with higher private participation, extending to newer ways of credit risk assessment for the agriculture sector and project monitoring, to name a few.
Quote on Capital Markets from Subha Sri Narayanan, Director, CRISIL Ratings
“The measures pertaining to tax rates on capital market transactions – Securities Transaction Tax on derivatives, Long Term Capital Gains tax, and Short-Term Capital Gains tax – are aimed at bringing in greater stability in the equity markets by incentivising long-term investment activity and curbing the derivatives segment, where traded volume has risen over 99%. There could be an impact on market volume in the near-term that, in turn, could affect the revenue of brokerage houses which have enjoyed rising profitability because of the market upcycle. At the same time, they have also had to realign their business models to manage the evolving regulatory environment, with the most recent change being the revision in the charges levied on stockbrokers by market infrastructure institutions.”
Quote on interest free loans to states from Anuj Sethi, Senior Director, CRISIL Ratings
“The increase in the allocation of interest-free loans to state governments by 15% to Rs 1.5 lakh crore for spending on capital expenditure reflects the central government’s continued focus on infrastructure development. That said, the availability of the majority of these funds will be subject to the state governments undertaking various reforms, including land and labour reforms. In the past, states had utilised only 80-85% of the budgeted levels due to their inability to meet the conditionalities. Hence, undertaking the reforms in a timely manner, which can allow states to utilise the earmarked amount, remains critical.”
The agriculture budget this year focuses on a structural measure through 4 C’s- climate, credit, cutting-edge-technology and critical infrastructure. One can see a clear focus on long-term measures to enhance productivity of crops and combat climate change through High-Yeilding and climate resilient variety of seeds. Development of infrastructure cluster for vegetables near consumption centers to bring price stability, given that post-harvest losses in vegetables can be upwards of 10%. On the technology front digital crop survey, mapping of farmers to their land parcels, and issuance of Jan Samarth based Kisan Credit Cards indicate commitment of government towards promoting better credit risk assessment, and enhanced formal credit penetration for farmers, which currently stands at around 60%. Additionally, allocations under PM KISAN and MNREGA have remained at par with last year levels.
