With the elections concluded, ministries allocated, and the first session of the 18th Lok Sabha underway, the stock market's focus has shifted to policy announcements and the upcoming Union Budget in July.
Even though collation politics may make it challenging to pass legislation on the more ambitious parts of the government reform agenda in areas like agriculture, land, labour, and judicial, experts believe that no substantial policy changes could be proposed during the Budget.
"We strongly believe (and hope) that there will not be substantial changes in its mindset and philosophy, creating policy continuity. Coalition politics, however, could make it more challenging to pass legislation on the more ambitious parts of the government reform agenda in areas like agriculture, land, labour and judicial, which are usually out of budgets," said brokerage firm Motilal Oswal Financial Services.
Motilal observed that the mandate of the BJP in NDA-II (starting FY25) is much stronger than during NDA-I, which was quite visible in the Cabinet allocation, wherein the BJP retained most of the high-profile departments with their ministers (such as home, defence, finance, external affairs, road transport and highways, among others).
"During the past decade, the BJP has very carefully created an image of a clean government, minimising wasteful spending and corruption, making the Budget more transparent by reducing off-budget expenditure/borrowings, leading to higher capex (capital expenditure) allocation, and resisting calls for large rural support, and maintaining fiscal prudence," said Motilal Oswal.
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In Budget 2025, Motilal believes that the new government will largely retain its tax and non-debt capital receipt projections, including disinvestment, as presented during the Interim Budget in February.
In that case, the RBI's transfer of ₹2.11 lakh crore will result in excess receipts of about ₹1.5 lakh crore in FY25. According to Motilal Oswal, a large portion of these additional receipts could be spent under various heads, while a small portion could be used to reduce the fiscal deficit.
" ₹30,000-40,000 crore could be utilised to reduce the fiscal deficit to 5 per cent of GDP, from the 5.1 per cent of GDP announced in the Interim Budget," said the brokerage firm.
Moreover, one way to spend additional resources could be to provide more capex-related loans to states, improving the Center’s total capital spending (including loans and advances).
"The Center budgeted ₹1.4 lakh crore to states and UTs as loans and advances in FY25 in the Interim Budget, which could be increased by ₹30,000-40,000 crore," said Motilal.
Increasing its focus on the agriculture sector, if the government decides to revise the instalments under PM-KISAN by 50 per cent to ₹9,000 per annum, it would cost the exchequer another ₹30,000 crore, according to Motilal Oswal.
The Union Government may use the remaining ₹50,000 crore to provide some more incentives to the taxpayers to shift to the new tax regime and expand on housing schemes or various other schemes.
"Overall, we do not expect the government to divert from its fiscal deficit consolidation path while improving the quality of fiscal spending. It is, however, very likely that fiscal spending could be increased due to higher receipts led by the RBI dividend," said the brokerage firm.
Motilal sees little chance that the upcoming state assembly elections in Maharashtra, Haryana, and Jharkhand will influence the upcoming budget allocations. This is because the voting patterns in state and general elections tend to be very different.
Another key point highlighted by the brokerage firm is that while advocates for a rural economy package may cite the BJP's poor performance in Uttar Pradesh and Maharashtra in the last Lok Sabha election to support their case, the party's significant victories in Bihar and Madhya Pradesh show that voter behaviour is influenced by a variety of factors.
Moreover, the brokerage firm said it is highly unlikely that tax incentives for the middle-class and poor Indians would be seen by voters in the election-bound states as exclusive policies for them. A list of a large package of freebies, which was included in the Congress manifesto but was largely absent in the BJP manifesto, reflects the maturity of voters in the country.
Motilal believes the results of the Maharashtra assembly elections would be largely driven by state politics rather than national policies.
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