The fiscal consolidation and consequently lower borrowing is likely by the government in the Union Budget 2024 with focus on capex is further expected, said a recent report by CareEdge Ratings on Tuesday.

It said the government is likely to retain a capex target for FY25 at Rs 11.1 trillion, growth of 17% compared to FY24.

In FY24, the overall public capex grew by 15.1%, and a slowdown in state capex and contraction in CPSE capex moderated overall public capex growth.

Further, the CPSE capex has contracted over the past few years. However, FY25 interim budget saw a 5.2% growth in allocation to CPSEs for capex, the report added.

The ratings agency expects the government to incentivise inflows, undertake steps to improve deposit inflows into the banking sector, relaunch a scheme similar to PMAY CLSS for affordable housing, greater impetus on MSME focused schemes to enable MSMEs access funds for capital expenditure/working capital, progress on reforms such as ECL framework and reduce differentiation in regulations between banks and NBFCs.

Government could also look at diluting stakes in select public sector banks to meet listing norms.

It expected that the government can infuse capital in public sector general insurance companies the companies have lower solvency ratios which need to be addressed along with the need for growth capital.

It highlighted that reforms are needed on the line of composite license, micro insurance, IND AS, etc. to drive the target of insurance for all.

CareEdge Ratings said that the Fiscal Deficit Target may be reduced.

Additional revenue growth is expected to help reduce the fiscal deficit target for FY25 to 5% of GDP (from interim budget’s target of 5.1 per cent of GDP), even after accounting for higher revenue expenditure.

Higher projection of nominal GDP growth for FY25 is also expected at 10.7% (as against interim budget estimate of 10.5 per cent), the report said.

General government debt has shot up to 83% of GDP in FY24, resulting in high interest burden.

With sovereign rating agencies watching the debt trajectory, the focus on fiscal consolidation should continue.