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‘Constrained financially, government will not be in a position to offer tax reliefs post election’

The Central government may not offer any tax relief or concessions even in the post-election full budget owing to its financial constraints, said a top economist at credit rating agency Acuite Ratings & Research.

Chennai, Feb 2,2024:  The Central government may not offer any tax relief or concessions even in the post-election full budget owing to its financial constraints, said a top economist at credit rating agency Acuite Ratings & Research.

On the absence of tax reliefs or concessions in the Interim Budget presented by Finance Minister Nirmala Sitharaman in the Parliament on Thursday, Acuite’s Chief Economist and Head, Research, Suman Chowdhury said: “In our opinion, such concessions are unlikely even in the post-election full budget exercise given the fiscal constraints and the criticality of fiscal consolidation.”

As the general elections are slated in the first half of the calendar year, the government had submitted only an Interim Budget.

Post elections, the new government will present the budget for the full year of FY24-25.

It may be tempting to term such an interim budget as a non-event, given the absence of major policy announcements, Chowdhury said.

“But in our opinion, the government has done well in focussing its communication on four key themes which are likely to ensure sustainable growth and a stable macroeconomic framework over the next five years. These key themes are: (i) fiscal consolidation (ii) stronger support and additional programmes for the economically weaker sections (iii) continuing emphasis on infrastructure development and (iv) fresh programmes to meet the green and sustainable development goals,” he noted.

“The target for fiscal consolidation has been set tighter for FY25 than our expectations; at 5.1 per cent of GDP (gross domestic product) it is slightly ambitious in our opinion. With the expected moderation in GDP growth in the next few quarters, there is a likelihood of a more moderate tax revenue growth and the dependence on non-tax revenues like disinvestment will be clearly higher,” he said.

“From a positive perspective, the likelihood of high ticket disinvestments has significantly increased for the next fiscal if the current government is reinstated to power,” Chowdhury added.

Notwithstanding the robust economic growth in FY24, there is still a fragility in private consumption with only a modest 4.4 per cent growth estimated by the NSO. The data on FMCG volumes suggest that rural demand has been the key factor constraining the overall demand. The government has expectedly, enhanced the allocation on MNREGA from Rs 60,000 crore to Rs 86,000 crore for the current and the next fiscal.

On the agriculture and allied sector front, there has been an emphasis on seafood exports and improving productivity in dairy sector which will raise rural incomes.

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