Dr. MANISH KUMAR
The economic survey 2022-23 followed by union budget 2023-24 together highlights the resilience and robustness of Indian economy. In the backdrop of three major global crises since 2020 – Covid-19, Russia-Ukraine conflict and Fed rate hike, India’s recovery on growth trajectory is outstanding among major economies. As per revised estimates, real GDP growth is expected to be 7 percent in current fiscal year. India’s bounce back in uncertain macroeconomic situation with constant fear of global recession provides window of opportunity to billions and billionaires.
Finance Minister’s Announcement of reduced fiscal deficit at 5.9 percent of GDP in 2023-24 is on expected line. Assurance of achieving 4.5 percent fiscal deficit by 2025-26 looks well on card after reaching a maximum of 9.2 percent in 2020-21. Evident from fiscal trends, COVID-19 appears as the single biggest reason for break in the trend. Average of 12 years already show deficit going below 4.5 percent. All over the world, government expenditure increased while growth plummeted. But India has performed well despite naysayers’ advice and prediction. Trust those who deliver not those who pander.
Going forward, India is safely moving towards target under the lighthouse of financial responsibility and budget management (FRBM) act in place. However, fiscal deficit is not major concern despite overemphasis across the board. If we look at the sources of deficit financing, India’s true strength emerges. Majority of financing is from domestic savings instead of reliance on dollar denominated foreign borrowings. India’s strength and success in deficit financing comes from how she finances her deficits therefore India remains insulated from problem associated with foreign borrowings. Loans and trade in dollars become a burden when dollar becomes increasingly scarce after high inflation followed by increase in policy rates by the Fed. In this context, cautious approach in deficit financing both at the level of deficit and sources of deficit financing is worth admiration. Post COVID performance of Indian economy is a testimony of the same.
Prudent and sanguine policymaking always remains India’s steadfast approach. Despite fears of inflation and unemployment especially before crucial 2024 general election, budget focusses on growth enabled by three-fold rise in capital expenditure from 2019-20 level. With prior evidence of crowding-in effect of government expenditure, there is expectation of renewed confidence and wider participation of private players. Together, they are expected to propel the investment and growth cycle further.
Food inflation is expected to persist due to inadequate supply both at home and away. However, food safety net in place due to fear of Chinese version of COVID-19 sneaking through should alleviate situation. In last six years,4.6 percent of average growth in agriculture sector also complements in fight against inflation which shows signs of stabilization within the reach of the Reserve Bank.Essential items prices are not going to subside easily due to supply side problems which does not have immediate solution. Energy prices also remain headache due to ongoing conflict and geoeconomic & geopolitical struggles.
In this context, government extends some breathing space to taxpayers through changes in direct tax structure. Back of the envelope calculation suggests around Rs. 2 lakh crore savings for 6.5 crore taxpayers with an average savings of Rs.30000. A portion of that would be spent on consumption while other portion would come back through domestic savings investment channel. Two savings schemes draw attention to socioeconomic reality. Targeting women through savings certificate is always a welcome move to tap their savings propensity. More women attaining higher education while average marriage age is moving up. Therein lies the opportunity to mainstream their saving decisions. On the other hand, increasing limits of senior citizen savings scheme not only provides additional resources required but puts light on rising life expectancy and nuclearization of family.
Therefore, fear of deficits are misplaced and based in rote knowledge of the subject instead of sound understanding of situation and practices of real world. Union budget 2023-24 aims to expand the growth further from recovery to trajectory. There are realistic provisions and calculation for legitimate concerns of inflation of unemployment. Even if inflation persist at current level, higher growth and employment is more desirable antidote. Higher growth also curbs the fears of deficit through increased revenue. Policy gambit after pandemic has paid off, trust the same through this budget before general election. Last but not the least, there are always post budget decisions to look out for. Afterall, realpolitik works better than punditry.
(Dr. Manish Kumar is Assistant Professor, Department of Economics, School of Liberal Arts and Social Sciences, SRM University, AP)