Budget to pick measures to boost growth without fuelling inflation

The key goals for the 1 February budget would be to stimulate exports, expand and consolidate the steps already taken to bring investments in strategic and sunrise sectors, cut the current account deficit and establish a clear and high economic growth trajectory while pursuing fiscal consolidation, said the person, who spoke on condition of not being named.

Widening merchandise trade deficit and net outgo of investment income payments pushed India’s current account deficit to $23.9 billion at the end of June quarter, according to the RBI.

The FY24 budget would also incorporate suggestions for the medium-term goal of making India a developed nation, based on the initial deliberations of 11 committees of secretaries tasked with identifying key milestones to be achieved in this regard. “Clearly, we need to make sure economic growth remains strong. How do you balance growth and inflation control—that would be the background in which the budget will be presented. We have taken steps to attract investments into strategic and carefully selected sunrise sectors through production-linked incentives giving a huge boost manufacturing. The budget is going to look at what all are the schemes and programmes that could be implemented to make sure we are on a clear, high-growth trajectory,” the person said.

Stimulating exports and reducing current account deficit are also bound to be in focus, the person said.

To be sure, growing the economy, cutting inflation and narrowing the trade and fiscal deficits at the same time won’t be an easy task, and the choice of schemes becomes important in this context.

For instance, in the economic stimulus package offered during the pandemic, credit guarantees played a key role in spurring economic activity without direct government spending. With the economy expected to grow higher than the projected 11.1% in nominal terms, the government may be able to scale up its spending in absolute terms next fiscal while sticking to its fiscal consolidation path.

Sachchidanand Shukla, chief economist at Mahindra Group said a 6.8-7% growth in real terms is not unreasonable to expect this financial year. “One thing I would like to see in the budget is the commitment to adhere to the medium-term fiscal consolidation path, given the hard lessons from the UK’s fiscal policy disaster and schizophrenic global markets. Steps to support the recovery in rural consumption and maintaining the run-rate on capital expenditure should also be the other important considerations in the next budget.” 

The government’s capital spending allocation for this fiscal is ₹7.5 trillion, more than 45% of which had been spent by end of September, as per data available with the Controller General of Accounts. If grants to states are included, the effective capital expenditure planned by the Centre for this fiscal is ₹10.7 trillion. 

In addition to the immediate requirement of supporting growth without fuelling inflation and fiscal deficit, the budget is also expected to incorporate early ideas from the panels of secretaries which are now breaking down the goal of reaching developed economy-status into milestones and actions. The final report of these panels could however, take time.

A rapid deterioration in global growth prospects, coupled with high inflation and worsening financial conditions, has increased fears of an impending global recession.

The government’s calculation is that while a global slowdown may dampen India’s exports outlook, resilient domestic demand and a re-invigorated investment cycle will give impetus to growth, according to finance ministry’s economic outlook for October released last week. In a world where monetary tightening has weakened growth prospects, India appears well-placed to grow at a moderately brisk rate in the coming years, the ministry said in its outlook.

In September, the RBI had lowered GDP growth projections for this fiscal to 7% from its earlier forecast of 7.2% citing the headwinds from extended geopolitical tensions and tightening global financial conditions.

An email sent to the finance ministry on Saturday seeking comments for the story remained unanswered at the time of publishing.