Morgan Stanley Predicts Focus on 'Viksit Bharat' in Upcoming Budget

Morgan Stanley forecasts that Finance Minister Nirmala Sitharaman's upcoming Budget will prioritize the government's 'Viksit Bharat' roadmap for 2047 and highlight a medium-term fiscal consolidation plan. The focus is expected to be on capital expenditure over revenue spending and targeted social sector investments, with potential fiscal deficit reduction due to surplus transfers from the RBI.

Global brokerage firm Morgan Stanley has projected that Finance Minister Nirmala Sitharaman's forthcoming Budget will emphasize the government's vision of a 'Viksit Bharat' by 2047 and outline a medium-term fiscal consolidation strategy.

'Guided by fiscal prudence, the Budget is likely to prioritize capital expenditure over revenue spending and focus on targeted social sector investments to bolster access to physical, social, and digital infrastructure,' Morgan Stanley's research report noted Wednesday.

Sitharaman is set to deliver the full Budget for fiscal year 2024-25 on July 23, marking the first significant policy document of the new administration. The firm also expects the fiscal deficit target to remain at 5.1% of GDP for 2024-25, aligning with the previous interim budget and aiming for a target of 4.5% of GDP by the next fiscal year.

According to the report, fiscal headroom has improved thanks to a larger-than-anticipated transfer of surplus from the RBI, enabling continued momentum on capital expenditure and increased welfare spending. Consequently, there is potential for a slightly lower fiscal deficit target, possibly a bit below 5.1% of GDP, owing to the support from tax and non-tax revenues.

The Budget is also expected to give a roadmap for fiscal consolidation beyond 2025-26, along with its main focus on 'Viksit Bharat.' The brokerage firm observed that while the Budget's impact on stock markets has generally declined, market performance ahead of the Budget suggests both volatility and potential correction might follow.

(With inputs from agencies.)