With portfolios allocated  for Ministers in the Council of Ministers led by Prime Minister Narendra Modi, global agencies such as Barclay and Morgan Stanley expect continuity to be the theme. While Barclay does not see any change in the interim budget’s estimate of fiscal deficit for FY 25, Morgan Stanley expects supply-side reform to continue.

Post swearing-in on June 8, President Droupadi Murmu on Monday directed the allocation of portfolios for 30 Cabinet Ministers, 5 Ministers of State (Independent Charge) and 36 Ministers of State. While there is no change in the top five portfolios (Home, Defence, External Affairs, Finance, and Surface Transport), all key Ministries barring Civil Aviation are with the BJP only.

A note authored by Shreya Sodhani, Regional Economist with Barclays, said the new Council is on the expected line. “PM Modi’s Bhartiya Janata Party (BJP) retained the four top positions and kept the respective ministers unchanged, signifying broad policy continuity,” she said. Further, the cabinet portfolio is a mix of experienced Union ministers, civil servants, and ministers with extensive state administration experience.

With the cabinet formation now out of the way, focus shifts to the Union Budget, expected in July. “We think that following the loss of the majority for the BJP, we may see some changes in spending patterns in the new budget, compared with the Interim Budget,” she said.

Further, while maintaining the infrastructure-led capital expenditure focus, we think revenue expenditure may see an increase. There may be a temptation to increase spending on specific social sector schemes, particularly those which target rural consumption — given that outlays in India’s key schemes have seen little change in the past two years.

Still, “given the solid starting position for the government’s books, ie, a large RBI dividend and higher tax collection, we think the fiscal deficit target will remain at 5.1 per cent of GDP, with the borrowing programme likely to be unchanged,” she said. The interim Budget has set a target of Rs 14.13-lakh crore of gross borrowing during FY25 to bridge the deficit between expenditure and Income. The Government and RBI have decided that 53 per cent (Rs 7.5 lakh crore) of the yearly target will be borrowed during the first half of the current fiscal, which is lower than the previous years’ number of 60 per cent or more.

Another research report – ‘The Viewpoint: India – Invest or Redistribute?’ authored by Chetan Ahya, Chief Asia Economist, Morgan Stanley Asia Limited, Derrick Y Kam, Asia Economist, Morgan Stanley Asia (Singapore) Pte. and Jonathan Cheung, Economist, Morgan Stanley Asia Limited have debated on one of the key poll issue- redistribution of wealth. It said that the general election’s outcome has raised debate about whether India could pivot towards redistribution. “We expect supply-side reforms to continue as we believe this remains the best approach to achieving strong growth with moderate inflation and maximizing social welfare,” it said.

Further, it pointed out that after the elections, some investors have begun to explore the notion that the results may prompt policymakers to shift towards redistribution. However, “we expect them to stay the course on creating a conducive environment to lift public and private capex,” it said. The note also highlighted that aggressive redistribution policies in the past have meant inflation, which led to an erosion of real income growth for the bottom 20 per cent. Lifting investment is a durable and sustainable approach to creating jobs and lifting people out of poverty, the report mentioned.