27 Jan 2023 , 10:45 AM
Their conclusions are:
Analysts at IIFL Capital Services expect minimal populism and deficit of 5.8%.
Methodology
Analysts at IIFL Capital Services have compared the YoY BE (budget estimate) over RE (revised estimate) in PEY Budgets, with the 3-year CAGR of RE over Actuals, line item-wise. Since YoY or 3-year CAGR can be influenced by inflation, analysts at IIFL Capital Services have compared acceleration between segments — hence: (i) capex/revex (ii) populism/growth (iii) rural/others.
Governments do not always step up revex, though it pays
In FY04 and FY14 Budgets, the respective governments raised capex growth instead of revex growth relatively, and lost. On the other hand, revex was emphasized more in FY09 (significantly) and in FY19 (marginally), and incumbents won. However, in two out of three PEY budgets, analysts at IIFL Capital Services have noticed major capex emphasis, and the current NDA is both fiscally conservative and capex-oriented, relative to previous governments. Analysts at IIFL Capital Services expect that to show up now too.
PEY Budgets not really populist – expect fiscal deficit of 5.8%
Classifying all capex as growth and all revex as either populist (scheme-related) or others (salaries, pensions, etc.), analysts at IIFL Capital Services notice that large increases over trend were seen for growth expenditure. They expect that a reduction in subsidies will enable fiscal deficit budgeted to come in at 5.8% for FY24, and continuation of support for Manufacturing, Green Energy, EVs, etc.; and of course, expansion of allocation for Infra.
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