Before the 2024 elections, there won’t likely be a spending spree in the final full Indian budget.
According to the sources of experts, the Indian government will priorities fiscal reduction in its February 1 budget, the final comprehensive one before a 2024 general election. They claimed that slowing economic development would prevent it from increasing spending.
Since taking office in 2014, Prime Minister Narendra Modi’s administration has mainly adhered to a course of fiscal consolidation, breaking with a pattern of government borrowing and spending, especially during an election year.
However, the COVID-19 pandemic had a huge impact on public finances and increased the fiscal deficit for 2020–21 from 3.5% of GDP to a record 9.3% of GDP.
It was anticipated that a budget deficit of 6.9% for 2021–2022 and a projected 6.4% for 2022–2023 would be followed by a further decline in the next fiscal year.
37 economists were surveyed from December 13 to December 21. The median prediction was that the government will cap borrowing in 2023–2024 at 6.0% of GDP, far higher than the 4%–5% historical average. The range of predictions was 5.7% to 6.8%.
“There are concerns about a slowdown in the world economy, and those worries will have an impact on the Indian economy. Consequently, there is only so much progressive spending can be used to spur growth “The focus would be on capital investment, according to Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
In addition to stating that despite a strong current year, “tax collections will not sustain into next year,” Bhardwaj also stated that much will depend on them.
29 out of 35 economists who responded to a second question, or more than 80 percent, said the budget Finance Minister Nirmala Sitharaman is anticipated to release on February 1 will likely centre on fiscal consolidation.
The government made it clear on Tuesday that it aims to reach the budget deficit objective of 4.5% of GDP by the end of the 2025–2026 fiscal year, notwithstanding external shocks and global uncertainty.
Concern over India’s sovereign credit rating, which is currently at BBB- and just one notch above junk status, is reflected in efforts to preserve fiscal restraint.
That will probably limit the government’s ability to help firms and households who are experiencing a patchy epidemic recovery.
While stronger growth was anticipated than in many other nations, it would still be too slow to create the number of jobs necessary to lift tens of millions of people out of poverty in a nation where many people struggle to make ends meet on less than $1 or $2 per day.
From the 6.3% reported in the prior quarter, economic growth is estimated to have fallen drastically to an annual 4.6% in the December quarter. According to the poll, it was predicted to slow to 4.4% in the following quarter.
Given that state assembly elections will be held in Karnataka, Chhattisgarh, Madhya Pradesh, and Rajasthan in 2023, Sitharaman’s anticipated fiscal restraint is likely to deter the government from making significant cuts to social assistance.
Sonal Varma, chief economist at Nomura, said that “both economic and political compulsions will create a more tough climate for substantial deficit consolidation next year.”
Those who anticipate a more populist budget claimed the government would reveal new subsidies, an increase in healthcare spending, and increased rural spending to create jobs.
Samiran Chakraborty, chief economist at Citi, observed that “the last complete budget before the general elections would have a stronger political undertone.”
“A portion of spending may be redirected toward already-existing rural programmes like MGNREGA (the Mahatma Gandhi National Rural Employment Guarantee Act), rural housing, roads, etc. given the fragility of the rural economy. Surprise features can include programmes for the urban poor or a boost in the minimum wage.”