This week, India will unveil its provisional budget, and here's what you can anticipate.

• The interim budget for financial year 2024 to 2025 will be presented by India's finance ministry on Feb 1, prior to the general elections.
• The fiscal deficit target, capital spending, and taxes will be the main topics discussed in upcoming announcements, according to analysts.

The interim budget for 2024 in India will be released on Thursday, prior to the general elections.

An interim budget will be presented by Finance Minister Nirmala Sitharaman, serving as a temporary financial plan during an election year, to address immediate financial requirements until a new government is formed.

The release of the full-fledged union budget for the new fiscal year, from April 1, 2024 to March 31, 2025, will be delayed until after the elections, which will occur between April and May.

Generally, the interim budget won't feature grand and far-reaching policy declarations.

The interim budget is still crucial, according to Nomura, as it could reveal insights into the final budget, given that many analysts anticipate the Bharatiya Janata Party winning the upcoming election.

The government is in election mode, leading to tacit targeting of key constituents, and the interim budget is likely to be a political statement, according to the bank's economists.

Here are the biggest takeaways analysts expect.

Fiscal deficit target

The government aims to reduce India's fiscal deficit from 6.4% of GDP in 2022-2023 to 5.9% in 2023-2024 by 50 basis points.

In the financial year 2024-2025, the fiscal deficit is predicted to shrink to 5.3% by economists from Nomura and BofA Global Research.

According to Goldman Sachs analysts, the government may achieve the 5.9% of GDP fiscal deficit target in FY24 if spending remains subdued in the current quarter, potentially bringing the deficit down to 5.8%.

Goldman anticipates an increase in expenditure on significant subsidies, including the rural employment initiative.

Nilesh Shah, managing director at Kotak Mahindra Asset Management, stated that the government must work towards meeting its divestment targets before the current quarter ends in March.

To meet its fiscal deficit target, the government must increase divestment targets by selling state-owned enterprises.

If the central government does not take up the divestment receipts in the next two months, a balance of 5.9% will not be met, Shah warned.

According to Shah, if the central government does not take over the divestment receipts within the next two months, a reasonable balance needs to be struck to achieve the 5.9% target.

For the fifth year in a row, India is predicted to fall short of its divestment goals, according to reports.

Capital spending

By 2075, India is predicted to be the world's second-largest economy, according to Goldman Sachs.

Globally, India ranks fifth in economy size, following the U.S., China, Japan, and Germany.

In order to become the No. 2 economy after China, India must enhance its infrastructure and develop superior road and railway connections.

Renewable energy and agriculture are also important, according to Kranthi Bathini, equity strategist at WealthMills Securities, who emphasized the need for infrastructure development, including healthcare and education.

The government announced a 33% increase in infrastructure spending to 10 trillion rupees ($122.29 billion) in the annual budget last year.

The government is predicted to increase capital spending by approximately 36% in the fiscal year 2024-2025 and roughly 16.5% in fiscal year 2025-2026, which will keep the central government's capital spending at 3.4% of GDP.

Nomura stated that the government's emphasis on public capex is a deliberate policy decision aimed at addressing India's significant infrastructure deficit and is intended to encourage private capex in the future.

India is projected to become the world's third-largest economy by 2027 with a GDP of $5 trillion, according to a report released by its Finance Ministry on Monday. Additionally, the finance ministry stated that the economy could achieve growth rates of 7% or higher in the fiscal year 2024.

Taxes

Analysts predict that there won't be significant changes in taxation with this interim budget.

The budget's tax benefits, such as credits or exemptions for investments, will be crucial for those anticipating it.

The company anticipates an increase of approximately 15% in both income tax and corporate tax annually.

During fiscal year 2024-2025, the investment bank predicted that indirect taxes could increase by 11% year-over-year, as the collection of goods and services tax grew at a healthy pace.

Bathini stated that such announcements can be made in this budget as it is close to the elections, and there will be a greater emphasis on rural development.

What’s next?

The upcoming general elections in April and May will determine if the Modi government will be reelected for its third term. The optimism that the BJP will win again and there will be policy continuity has boosted India's stock markets.

In mid-January, India's stock market index Nifty 50 surpassed 22,000 points, following a series of record-breaking highs.

If the Reserve Bank of India cuts interest rates in the second half of 2024, the Indian stock markets may rally significantly ahead of the elections, according to previous analyst predictions to CNBC.

The key lending rate of the Reserve Bank of India is currently 6.5%.

DBS senior economist Radhika Rao stated that the upcoming brewing debate will focus on the optimal timing for a shift in the RBI's policy direction.

Rao anticipates the Indian central bank to maintain its monetary policy until June, followed by cutting interest rates from the third quarter this year, while closely monitoring the U.S. Federal Reserve's policy.

Lower lending rates often boost liquidity and aid risk-taking sentiment in stock markets.

— CNBC’s Naman Tandon contributed to this report.

The financial years for fiscal deficits in this story have been corrected.