By Dr. Gyan Pathak
Union Budget 2023-24 has fallen into the trap of lower growth prospect that has been estimated downwardly for the current fiscal 2022-23 ending on March 31, 2023, and also for the financial year 2023-24. Union Finance Ministry is under acute pressure of resource mobilization to fund social sector schemes that is politically sensitive since Union Budget 2023-24 would be the last full pre-election budget before the Lok Sabha Election 2024.
The challenges the Union Minister of Finance is facing can only be imagined by the fact that the GDP for BE 2022-2023 was projected at Rs 2,58,00,000 crore assuming 11.1% growth over the estimated GDP of Rs 2,32,14,703 crore for 2021-2022 (RE). However, the assumption has clearly gone wrong, posing a great challenge of balancing the budget allocations amidst great fiscal constraints.
The assertion of OECD Economic Outlook of November that “India is set to be the second-fastest growing economy in the G20 in FY 2022-23, despite decelerating global demand and the tightening policy to manage inflation pressures” has only a euphemistic value in the popular mind, but such statements do not help in facing the harsh reality of financial shortfall. Even OECD had cut India’s GDP forecast for the current financial year to 6.6 per cent as against India’s budget expectations of 11.1 per cent on the basis of which the Union Budget 2022-23 was made.
World bank had also revised India’s growth forecast in December for the current financial year at 6.9 per cent. Deloitte Insights had put it in October between 6.8-7.1 per cent, Fitch had put it in December at 7 per cent, and IMF had projected it in December at 6.8 per cent and so on. Reserve Bank of India has also pegged GDP growth for the current financial year at 6.8 per cent. Moreover, most of the assessment agencies have not ruled out further downward assessment given the domestic and global uncertainties. Thus, we see that India, in any case would grow much below the Union Ministry of Finance’s budget calculations at 11.1 per cent of growth in GDP.
OECD had projected further deceleration of the GDP growth to 5.7 per cent for the financial year 2023-24. RBI had said in December that India’s GDP growth in the first half of 2023-24 was expected in the range of 6-6.6 per cent, and at 5.5 per cent in 2023-24. IMF had said in their December forecast that India would be growing at only 6.1 per cent in 2023-24, while World Bank had downward revised its forecast at 6.6 per cent. Every estimating agency is forecasting a deceleration in India’s GDP growth in 2023-24.
The latest CMIE forecast says that growth during the current fiscal 2022-23 would be merely 6.7 per cent of the GDP, and is largely aided by release of pent-up demand and the advantage of a low base in the previous year 2021-22, when the country was under devastating impact of the COVID-19 pandemic’s second wave. However, such advantages would be absent in the financial year 2023-24.
The fading away of domestic pent-up demand will be predominantly visible in the growth of private final consumption expenditure (PFCE), which is expected to grow by only 4.5 per cent in 2023-24 as against 6.8 per cent in the pre-pandemic decade. It is even lower than 4.9 per cent recorded in the last five decades, CMIE assessment says.
The challenge in budget making lies not only in likely exhaustion of the pent-up demand’s adverse effect, but also in recent steps of the government that may adversely affect PFCE growth prospects in 2023-24. Elevated and rising interest rates effected by RBI to deal with high inflation beyond the tolerable limit of 6 per cent, withdrawal of PMGKY, and any step for moderation in the farm income growth, etc would weigh heavy on PFCE, which in turn adversely affect the GDP growth, since PFCE ahs 58.6 per cent share in GDP.
In this scenario the Union Government has no option but to raise government final consumption expenditure (GFCE) which is only around 3 per cent in consumption expenditure during the last four year between 2018-19 and 2022-23. CMIE expects GFCE to be considerably growing by 5.6 per cent in 2023-24.
Gross fixed capital formation (GFCF) is likely to be increased by 6.5 per cent in 2023-24, as per CMIE assessment, which would be in fact sharp sequential deceleration in growth from 15.8 per cent in 2021-22 and 9.7 per cent as was estimated in 2022-23 budget. Therefore, meeting the increased investment demand would remain a challenge. Naturally, Union Government’s thrust on capex is to be continued while private sector participation would be less than modest.
However, the Union Government does not find itself to considerably increase the investment rate, ie GFCF in percentage of GDP, in the country because of decelerating GDP growth rate in 2023-24. It should be noted that investment rate was estimated to be 33.4 per cent for the current fiscal.
India is likely to have some relief from shrinking of exports and imports, since it would provide some precious resources. As per CMIE forecast, exports growth would be (-)1.8 per cent in 2023-24 as against 4.8 per cent in 2022-23, while imports growth would be (-)6.5 per cent and 14.2 per cent respectively.
There is likely to be deceleration in India’s gross value added (GVA) growth, which CMIE has estimated to be only 5.5 per cent for 2023-24 as against 6.4 per cent in the current fiscal 2022-23. Deceleration is expected in all sector except the manufacturing. GVA in agriculture would decline from 3.7 per cent in 2022-23 to 2.7 per cent in 2023-24, since production of all major crops is expected to fall. Rural areas therefore have brought major concerns in this pre-election budget. Budget making for 2023-24 has therefore become complex and tricky and limiting revenue and fiscal deficit remains a tough challenge. (IPA Service)
