Finance minister Nirmala Sitharaman will address the central board of the Reserve Bank of India (RBI) in a crucial meeting on February 14, in which she will likely cast light on the Budget’s focus on capital asset creation to spur economic growth without exacerbating inflationary pressure.
Separately, the minister will address the board of stock and commodity markets regulator Sebi on February 15, official sources told FE.
The Budget for 2022-23 has firmed up a roadmap for catapulting India to a high-growth trajectory without resorting to fiscal profligacy —something that the minister may highlight in the meeting. Fiscal deficit for FY23 is estimated to drop to 6.4% of GDP from 6.9% this year, when it breached the target by a notch.
However, the estimated record gross market borrowing of Rs 14.95 lakh crore for FY23 could complicate the RBI’s task, although top government functionaries have exuded confidence that the borrowing plan would go on smoothly. The 43% year-on-year rise in borrowing has spooked the bond market. At 6.88% on Friday, the yield on benchmark 10-year government securities was 11 bps higher than a week before, and up 43 bps so far this year.
Nevertheless, as FE had reported, the government refrained from a spending spree but chose to raise the quality of expenditure by allocating as much as Rs 7.5 lakh crore for FY23 capex to support the fragile growth story. Consequently, the share of the Centre’s budgetary capex in gross domestic product is estimated to jump to 2.9% for FY23 from 2.4% (excluding infusion into Air India) this fiscal. Similarly, capex will account for 19% of the total Budgetary spending for the next fiscal from 14.6% for FY22. In fact, while capex is estimated to rise 36% on year in FY23, revenue spending is expected to inch up by less than 1%.
Of the total capex outlay for FY23, Rs 1 lakh crore will be extended to states as interest-free, long-duration loans to better equip them fiscally to generate assets in all parts of the country and generate large-scale job opportunities.
The meeting promises to be much more than just a customary post-Budget huddle, as the Budget has been presented at a time when the Covid-ravaged economy is still recovering from the worst slump in its recorded history in FY21. On top of it, given a spurt in inflation in advanced economies, key central banks, mainly the US Federal Reserve, will likely start tightening interest rates sooner-than-expected in 2022. This could put pressure on the RBI to change its accommodative stance and raise policy rates early next fiscal if price pressure doesn’t abate meaningfully.
Retail inflation scaled a six-month peak of 5.59% in December. However, top government officials reckon that, with central banks opting for quantitative tightening, global commodity prices could ease. Being a net importer, India will likely see a moderation in price pressure.
Although the economy is estimated to grow 8.8% (upon the revised base) this fiscal, it was driven by a sharply-shrunk base. While analysts expect a meaningful rebound in FY23 (the Economic Survey has pegged real growth at 8-8.5%), it faces downside risks from any fresh Covid wave and global liquidity-tightening measures.
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