Despite being an interim Budget, expectations were running high from all segments of the society to get their share of benefits ahead of the elections — from probable standard tax deductions, sectoral sops, extra allocations for social sector schemes, along with the continued focus on infrastructure and fiscal prudence.

The Finance Minister has delivered a fairly balanced Budget, starkly deviating from expectations of a populist one ahead of the general elections. The FM noted the necessity of inclusive growth by focusing on farmers, youth, poor and women.

However, the highlight of the Interim Budget was the clear intention of the government to adhere to the strict fiscal consolidation roadmap set earlier by them, without compromising on the quality of expenditure. Earlier, the FY26 fiscal deficit target of 4.5 per cent of GDP seemed a tall task. But with the government’s FY25 FD/GDP budgeted estimate of 5.1 per cent after a lower-than-expected FY2024 FD/GDP of 5.8 per cent, the roadmap of consolidation seems achievable. Notably, the internal fiscal math too doesn’t look very awry, with tax growth of 11 per cent and tax buoyancy at 1.1 after a robust 1.4 in FY2024. Further, the expenditure growth has been kept very tepid at 6 per cent with the capex growth being higher at 11 per cent compared to the revenue expenditure growth of 3 per cent. While, we do see some downside risk to non-tax related revenues (telecom and disinvestment proceeds specifically), the slippage may be manageable through other offsets. Any case, much of these details will go through a revision in the July Budget post the election.

Until then, while the equity market may not have received any immediate reasons to rejoice, the bond markets have got an unexpected bonanza in terms of sharply lower than expected fiscal deficit and more importantly sharply lower market borrowings. The bond market dynamics was already looking quite favourable in the year ahead amid onset of global and domestic monetary easing cycle and robust FPI demand (due to inclusion of India in the JP Morgan Global Bond Index). The sharply lower bond supply is expected to create room for further rally.

Overall, the government’s intention of adhering to strict fiscal discipline should help create room for private capex revival. Notably, the Budget’s continued thrust on quality expenditure should minimise the impact of negative fiscal impulse on growth going ahead. Meanwhile, given the high debt/GDP ratio in India, the budget discipline will be key in reverting to pre-pandemic trends. Such a strong fiscal discipline push could also set the stage for a relook at the sovereign rating of India — a much awaited change sought by the government of India.

(The writer is Chief Economist, Kotak Mahindra Bank. Views expressed are personal)