Prime Minister Narendra Modi will early this week hold a meeting with key finance ministry officials to finalise the February 1 budget, the last full one of this government prior to the 2024 general election, people familiar with the talks said.
It’s likely to be high on political messaging with assembly polls in some states this year ahead of the general election, while retaining the core focus on supporting growth and boosting investments, they said.
The budget is likely to go big on spending without compromising on fiscal consolidation, raising more than usual resources from disinvestment and asset monetisation to back higher allocations.
Eye on Economic Growth
The FY23 budget had proposed a 13.2% rise in spending over the budget estimates of FY22. A similar order of increase is likely this year too.
It’s felt that high-decibel spending is needed to make an impact on the ground, another person said. The meeting has been called to firm up the direction of the budget, economically crucial in the wake of turbulence in advanced economies, they said.
“Measures are needed to lift growth… step-up in spending in education and health besides infra remain key,” said one of the persons cited above.
Modi on Friday met leading economists for pre-budget consultations. They advised the government to continue with the capital expenditure push and undertake measures to make India more attractive to global investors.
Support for states such as the capital expenditure credit line could be expanded further, along with a substantial boost for overall capital expenditure as in the last budget, which had bumped spending on asset creation by 35.4%. By the end of November, the Centre had spent nearly 60% of the budget for FY23.
A similar thrust is likely in FY24 amid signs of a nascent revival in private-sector investment. This is likely to be supported through a bouquet of policy measures to encourage private investment. This could include steps to reduce compliances, provide for easier dispute resolution, and stability in the tax regime.
Among specific measures, the government is expected to extend the lower corporate tax rate of 15% applicable on new investments beyond March 2024, and remove some customs exemptions to spur local manufacturing while focussing on easing business, they said.
The budget is likely to continue to prioritise fiscal consolidation amid a volatile global financial market that will be watching to see if India can sustain its outperformance.
India is projected to grow 7% in the current fiscal while the International Monetary Fund (IMF) expects a 6.1% rise in FY24, the fastest among the major economies.
The FY23 budget had proposed a fiscal deficit of 6.4% of GDP. It’s likely to target 5.8% of GDP this year on the way to the proposed 4.5% of GDP by FY26.
Economists have emphasised the need for fiscal consolidation.
“While rapid growth in tax revenue has helped India run an activist fiscal policy that acted as a shock absorber for last three years, as nominal GDP is expected to slow down in FY23-24, the need for continued consolidation is critical for debt sustainability,” Rahul Bajoria of Barclays said in a note.