PremiumThe Budget is expected to try to balance the needs of fiscal prudence against the desire to support economic activity, said Barclays in a recent report
The finance minister Niramala Sitharaman will present Union Budget 2023-24 on February 1. This will be her fourth full budget and last full budget before the general elections 2024.
The Budget is expected to try to balance the needs of fiscal prudence against the desire to support economic activity, said Barclays in a recent report. “For the first time in three years, the pandemic is no longer the driving force for India’s fiscal policy, although there are multiple challenges facing the government as it prepares for general elections in 2024."
The bank expects the fiscal deficit to hit the government’s target of 6.4% of GDP in FY22-23. For FY23-24, it feels the budget will target a deficit of 5.8% of GDP, which implies a fiscal deficit of ₹17.7 trillion next fiscal year.
With revenue growth holding up, we expect the government to gradually reduce the deficit and allow for modest spending growth, the bank said.
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“A surge in subsidies due to the Russia-Ukraine conflict was offset by materially higher tax collections, leading to a general sense of improvement in fiscal backdrop."
Capital expenditure in focus
Keeping the 2024 elections in mind, the government will keep increasing capital expenditure in the next 2-3 years, including spending on public infrastructure projects – logistics, technology, infrastructure and public utilities.
“Ahead of the 2024 general election, we think several large public projects are likely to be announced and started," said Rahul Bajoria, MD & Head of EM Asia (ex-China) Economics, Barclays.
Economic backdrop
The upcoming Budget comes at a time when India is just emerging from pandemic-related emergency measures, and is seeing high inflationary pressures, although there is a possibility of a modest recession this year, and upcoming elections in many states in 2023 and eventually central elections in 2024.
Expenditure
“We do not expect the budget to aim for significant expenditure rationalisation, despite the end of food subsidies under the PMGKY scheme. Since the pandemic, most of the widening of the deficit was driven by higher spending, than revenue shortfalls, and in our view most of the reduction of the deficit is likely to come through revenue growth," said Barclays in its report.