NEW DELHI: It is going to be a difficult task ahead for finance minister Nirmala Sitharaman and her team as they prepare the budget for the next fiscal. The minister and her team will have to walk a tightrope between keeping the government’s finances in order and at the same time ensuring ‘goodies’ for poor and middle class as this would be the last full budget for the present government. What makes the matter worse is the imminent global slowdown in 2023, which could derail many positive macro trends.
No escape from global slowdown
Even as GDP is all poised to grow at 6.8-7% in the current fiscal bringing with it the tax buoyancy, the government finances look much better than expected at the start of the year. However, come FY24 and things could start slowing down, affecting the government’s revenue generation. The tighter monetary policy in the current fiscal will have its lagging effect in the next fiscal as well. Most global financial and rating agencies have downgraded India’s FY24 GDP growth estimates sharply, some are even projecting a sub-5% growth for next fiscal.
Nomura in one of its latest reports said India’s growth rate cycle has peaked and a broad-based slowdown is underway. “While lower inflation should help support private consumption in coming months, the lagged effects of tighter financial conditions and weak global demand will weigh on investment and exports, while the post COVID catch-up in services is largely complete,” it said Nomura pegs 2023-24 growth at 5.2%, OECD estimates it at 5.7% while S&P pegs it at 6%. The World Bank has been a little more generous with its FY24 growth rate at 6.6%.
Question on sustainability of revenue
In current fiscal, revenue growth has been robust and analysts, as well as ministry officials, have, of late, shown confidence that gross revenue collections may overshot by Rs 3-4 lakh crore. The government has projected Rs 27.5 lakh crore tax revenues in 2022-23. In the first seven months, the Centre had collected Rs 16 lakh crore in gross tax revenue. Ideally, it should be able to double it by the end of the fiscal. But can it sustain the revenue growth next fiscal?
“Revenue growth has already started slowing down. GST revenues have plateaued with inflation and fall in import growth and corporate profits. The government will have to plan its budget accordingly,” says Subhash Chandra Garg, former finance secretary. Former revenue secretary Tarun Bajaj recently told this newspaper the government should be able to sustain tax growth unless the country is hit by recession or slows down.
Other sources of revenues like disinvestment and dividends from RBI and CPSEs might also dry up. The government is struggling to achieve the disinvestment target of Rs 65,000 crore in the current fiscal. As per officials from the Department of Investment and Public Asset management (DIPAM), the government can’t keep on raising the disinvestment targets year after year as there are limited CPSEs left to be monetised in future.
Fiscal deficit target for the current fiscal is 6.4%, which it is unlikely to breach. But the challenge for the government would be to bring it down substantially from those levels in the next fiscal. DK Srivastava, chief policy advisor, EY India, says FY24 budget may target a cut in fiscal deficit by 1% from FY23 (BE). Srivastava feels a 5.4% fiscal deficit is feasible.
Quality of expenditure
The budget is preceded by general elections in 2024. The FM might be tempted to loosen purse string and offer some goodies to ‘common man’. She would also like the government to keep focus on infrastructure spending. Could she deliver on both? Infrastructure and other Capex spend is good for the economy and has been the principal growth strategy of the government, says Garg as he feels despite resource tightness, the government will maintain this year’s Capex and will project a healthy growth in Capex for 2023-24. But how about spending on populist measures?
Garg feels the government is doling out a lot of on populist agenda in the current term in the form of PM Garib Kalyan Yojana, PM Kian etc. “There was no need for doubling the free food allowance per capita. The scheme has been continued for so long,” he adds.