India’s finance minister will present the annual budget to parliament on Wednesday. Seen here’s a roadside vendor selling rice in Mumbai, India.
Bloomberg | Getty Images
India’s finance minister will present the annual budget to parliament on Wednesday. It comes as the federal government faces a troublesome balancing act to make sure fiscal prudence and growth ahead of a world slowdown.
Finance Minister Nirmala Sitharaman will announce the ultimate full-year budget before the subsequent general elections in 2024.
“There are multiple targets that the federal government has to sort of aim at,” Suvodeep Rakshit, senior economist at Kotak Institutional Equities, told CNBC’s “Squawk Box Asia” on Wednesday.
“The budget lies [in] the superb balance … between fiscal consolidation and sort of pushing [for] growth — while the worldwide economy sort of slows down.”
In its annual economic survey released Tuesday, the finance ministry said it expects the economy to grow 6.5% within the fiscal 12 months from April 2023 through to March 2024.
That is compared 7% growth estimated for the present fiscal 12 months which ends in March this 12 months.
Analysts expect the federal government to concentrate on continued fiscal consolidation for this 12 months’s budget, despite challenges.
Nirmala Sitharaman, India’s finance minister, speaks during a news conference on the National Media Center in Recent Delhi, India, on Monday, Nov. 15, 2021.
T. Narayan | Bloomberg | Getty Images
This can allow the federal government to maintain “the gunpowder dry, in case, there may be any sort of economic slowdown that is available in — to illustrate in the subsequent 12 months and a half,” said Rakshit.
Inflationary pressures
“The federal government’s promised fiscal consolidation path would require a Herculean effort over the subsequent few years,” HSBC economist Pranjul Bhandari said in a recent note, adding that cutting budget deficits can be vital for controlling inflation.
“The fiscal deficit is prone to fall from a budgeted 6.4% in FY23 to five.8% in FY24; but market borrowings could remain elevated,” she added. “A negative fiscal impulse will likely help contain inflation and external deficits, aiding macro stability in uncertain times.”
The federal government may even need to be certain that there’s money within the hands of consumers before government goes in for the large election calendar.
Devang Mehta
head of equity advisory, Centrum Wealth
The Reserve Bank of India’s projection of 6.8% inflation for 2023 was above the upper goal limit of 6%, in response to the economic survey.
“While India’s retail inflation rate peaked at 7.8 per cent in April 2022, above the RBI’s upper tolerance limit of 6 per cent, the overshoot of inflation above the upper end of the goal range in India was nevertheless certainly one of the bottom on the earth,” the report said.
Investors may even be keenly watching how much borrowing is finished by the federal government this 12 months, Rakshit said.
“Expectations are between 15 to 16 trillion rupees. Anything beyond that can be seen negatively,” when it comes to borrowing, he noted.
Government incentives, like tax relief for people within the lower and middle income segments of the population, can be one other major think about the budget, said analysts.
“That is the last full 12 months budget for the federal government before general elections 2024. It also coincides with eight big state elections for 2023,” Devang Mehta, head of equity advisory at Centrum Wealth, told CNBC’s “Streets Signs Asia.”
“So the federal government may even need to be certain that there’s money within the hands of consumers before government goes in for the large election calendar. We hope for some relief giveaways to the center class and lower income bottom pyramid population.”
