Despite the fact that there are nine state elections this year, government may keep its fist tight and not distribute revadis in the budget

According to Emkay Global Financial Services, the over populist budget appears bleak in the face of declining tax revenue, high committed revenue, and market loans. Furthermore, it states that lower tax buoyancy could be offset in part by a higher RBI dividend and a still healthy assumption on divestment proceeds.

Scope for blatant populist budget looks bleak amid moderating tax revenue , high committed revex and market loans

The Report said,

"We watch for possible changes to capital gains tax structure and new personal tax regime, extension of concessional 15% tax rate for new manufacturing units, and higher import tariffs on PLI-related products,"

Gross tax/GDP ratio expected to moderate to 10.9 percent after robust tax buoyant FY23 across segments

It also stated that the gross tax/GDP ratio is expected to moderate to 10.9% after a tax-buoyant FY23 across segments.

Report further said,

"We will watch for possible changes to the capital gains tax structure to bring uniformity among tax rates/holding periods of various asset classes and some tinkering around the new concessional tax regime and an extension of concessional 15 per cent corporate tax rate for new manufacturing units and marginally higher customs duties on PLI-related products,"

Higher non-tax revenue will be led by bumper RBI dividends amid FX sales

Separately, increased RBI dividends in the midst of FX sales would drive higher non-tax revenue. The upcoming budget will have to make difficult policy choices between fostering a nascent recovery in growth and shrinking fiscal space with challenging debt dynamics.

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FY 23-24 Union Budget presented amid renewed global and urban uncertainties

The report states that the FY23-24 Union Budget will be presented against a backdrop of renewed uncertainty about global and domestic growth, tighter financial conditions, and the Union elections in CY24.Even if additional assistance is warranted for some economically vulnerable segments of the economy, a delicate balance must be maintained to ensure that the fiscal impulse is maximised to boost potential growth, even as policy adherence to medium-term fiscal sustainability is signalled.

Policy adherence to medium term fiscal sustainability would require:

(1) the expenditure-to-GDP ratio to remain healthy;
(2) front-loaded investment-focused stimulus, especially amid its larger multiplier effect on growth and employment.

Windfall gains may face pressure from stake sales of government large holdings

This necessitates, among other things, innovative reforms, improved resource allocation, and possible fiscal funding through aggressive asset sales, such as existing functional infrastructure monetization, disinvestment, and strategic sales. According to the report, we believe that some of these windfall gains may face future pressure from stake sales of the government's large holdings, which are primarily concentrated in commodity companies and the utilities sector.

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