Why Morgan Stanley Thinks Govt Shouldn't Cut Taxes In The Upcoming Budget

Morgan Stanley says the central government in the upcoming Union Budget will focus on its fiscal consolidation path and continue its investments in public capex in infrastructure and assumes no tax cut which will disappoint the markets.

What Happened: In its FY2025 budget expectations report, Morgan Stanley said the government is likely to continue on the path of fiscal consolidation to the fiscal deficit target of 5.1% of GDP in FY2025 and further consolidate to 4.5% in FY26.

Morgan Stanley in its base case does not see a reduction in personal income tax cut as was reported by media in June. The research firm argued that the medium-term objective of job creation will be achieved through capex spending. It sees the share of capex in GDP to increase to 3.5% of GDP in FY25 from 3.2% in FY24. 

“In our view, the medium-term objective of creating more jobs for the growing labour force will be better achieved through focus on capex spending,” the global research firm said in the note.

See Also: What Goldman Sachs Expects The Budget To Do With Railways, MSME And Manufacturing

The government is also likely to increase capital allocation to infrastructure sectors such as roads and railways and infrastructure development in rural areas, as per the brokerage firm.

In the note, the research firm also said the government would increase allocation to Power Grid and NTPC compared to the interim budget allocation. Other expectations are that the government is likely to increase allocation to Pradhan Mantri Awas Yojana (PMAY) to increase demand in tier 2-3 cities, clarity on EV incentives which includes the launch of FAME 3 as the current scheme, Electric Mobility Promotion Scheme (EMPS) will end on July 31, 2024. 

Finance Minister Nirmala Sitharaman is scheduled to present the Union Budget for FY25 on July 23 in the parliament.

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