EspressoLogy

Expectations are running high as Finance Minister will rise to present the government’s last full-year Budget before the Lok Sabha elections in 2024.

The Budget comes during interesting times: India will likely remain the fastest-growing large economy in the world amidst a bleak global backdrop.

This means that the FM will be inclined to continue to provide support to the economy even as her own purse strings continue to remain strained following the expansionary spend the government embarked upon to counter the pandemic-induced slowdown.

The options before any finance minister are quite simple: spend on things that start working quickly in the economy (think higher salaries, subsidies etc) or spend on long-term projects that pay off over the long term (infrastructure spending etc).

The dilemma gets compounded ahead of an election year where the pressure is on the FM to give a short-term boost to the economy.

Thankfully, the government’s record over the past 10 years has been impressive: capital expenditure (the investment spends that help the economy grow) has grown from about 12% of overall expenditure in FY14 to 16% last fiscal.

But the upcoming Budget will test the FM’s mettle considering she has to take into account soaring inflation, rising interest rates, slowing growth and high current account deficit (CAD) and fiscal deficit.

Also Read about Budget 2023: 7 Key Sectors that were in focus

It is the last point that could prove to be challenging. The FM increased the fiscal deficit – or the gap between earning and spending – to an unusually high 9.2% in FY21, an increase that credit rating agencies did not baulk at given that this was a pandemic year.

But the FM now has her task cut out, she cut the deficit to 6.9% last fiscal, which is expected to be shaved further to 6.4% for the current one. But going forward, the stock market expects fiscal deficit to come in below 6% for FY24, lest the bond markets may get spooked. India can ill afford rising high borrowing costs in a environment where rising rates are anyway a concern.

Amid this backdrop, the finance minister also must take care of the expectations from various sections of society – the salaried class, industry, markets, rural sector, and others. The Budget is expected to instill confidence in economic growth through favourable policies and kickstart momentum that was hampered in the past two years due to coronavirus.

One of the focus areas of the Budget is likely to be the rural economy. High inflation in 2022, soaring input prices, and changing weather conditions hampered real wage growth in the agricultural sector. Hence, the government is likely to announce some policy support for rural India in the budget.

To boost the manufacturing and services sector, India Inc expects uniformity in the tax rates from the government. However, given the limited options available to the government, it is highly unlikely to see any tax rate cut announcements. Meanwhile, the PLI schemes have proven to be a success and we can expect more of the same to be rolled out in new sectors.

Investment in health and education is also expected to be a part of budget proposals. Apart from this, the budget is also expected to continue to stimulate infrastructure development, low-cost housing and focus on skill development. On the revenue front, the FM may continue with the asset monetization route.

In conclusion, the Union Budget of FY2023-24 comes at a time when the nation faces a challenging economic situation ahead of the general election in 2024. The expectations of India Inc. and the market are very high amid the government’s focus on economic revival and job creation. A well-crafted budget with prudent fiscal management, incentivizing domestic production and consumption, and focusing on long-term structural reforms is the need of the hour. This will not only help revive the economy but also stimulate the journey towards a $5 trillion economy.

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