Finance Minister Nirmala Sitharaman unveiled the budget for the fiscal year 2024-25, emphasizing a comprehensive roadmap across nine critical sectors. From bolstering productivity in agriculture to fostering innovation through R&D, the Budget outlines plans to fortify India’s economic foundation. Highlighting priorities such as employment generation, inclusive human resource development, and energy security, the government aims to steer the nation towards resilience and growth. This piece brings you insights from CRISIL leaders on their reaction to the announcements made. Read on.
Dipti Deshpande, Principal Economist, CRISIL Limited on Economy
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
Pushan Sharma, Director-Research, CRISIL Market Intelligence & Analytics, on Agriculture
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.
Subha Sri Narayanan, Director, CRISIL Ratings on Capital Markets
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.
Rahul Prithiani, Senior Director & Global Head, Energy and Sustailability, Consulting, CRISIL Market Intelligence and Analytics on Energy
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.
Sehul Bhatt, Director-Research at CRISIL Market Intelligence and Analytics, on Cement sector
Government estimates an investment of ~Rs 10 lakh crore under the Pradhan Mantri Awas Yojana-Urban (PMAY-U) 2.0 for an additional 1 crore affordable houses over the next 5 years.
The central assistance of Rs. 2.2 lakh per house announced in the Budget is higher than the Rs. 1.5 lakh per house disbursed during the last 8 years. Three crore additional houses planned under the PM Awas Yojana in rural and urban areas are expected to support cement demand.
Allocations under PMAY-U and Pradhan Mantri Awas Yojana-Gramin in the fiscal 2025 budget are higher than the revised estimates of fiscal 2024 by ~36% and ~70%, respectively. This will translate to ~20 million tonnes of cement demand in the current fiscal, or 4-6% of pan-India demand as of FY24. Further, allocations under PMAY-U and PMAY-G in the fiscal 2025 budget are ~15% and ~8% higher than the allocations in the interim budget.
Under the Pradhan Mantri Gram Sadak Yojana, the launch of phase-IV to provide all-weather connectivity to 25,000 villages is also a positive development for the sector and will support incremental cement demand.
Given housing forms 55-60% of total cement demand, the impetus to affordable housing through the Pradhan Mantri Awas Yojana will keep cement demand on track for 7-8% growth in the current fiscal.
Aditya Jhaver, Director, CRISIL Ratings on Diamond & Gold Jewellery
The reduction in basic customs duty on gold to 6% from 10% is expected to provide a fillip to gold jewellery sales, which have been tepid in the recent past because of high prices. This will drive up volumes for domestic gold jewellery retailers including during the festive and wedding seasons.
Rahul Guha, Director, CRISIL Ratings on Diamond & Gold Jewellery
Safe Harbour rates for foreign mining companies selling raw diamonds in India will benefit the domestic diamond sector. 92% of the raw diamonds mined globally are polished in India. With this announcement, import prices for diamonds will reduce, which will have a spillover effect on polishers and exporters, reducing export and retail prices in tandem.
This will likely push polishers’ volumes in an otherwise subdued export environment, while supporting operating profitability.
