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Concerns about Balancing Growth and Stability
Union Budget 2023–24 attempts to strike a balance between accelerating growth and achieving fiscal consolidation. The increased allocation to capital expenditure is important to crowd in private sector investment. However, the allocation to the Food Corporation of India and Bharat Sanchar Nigam Limited under capital expenditures is not likely to yield returns. On fiscal deficit reduction, more front-loading it’s adjustment in 2023–24 would have eased the problem of achieving the target of 4.5% of gross domestic product by 2025–26. Furthermore, the budgeted reduction is predicated on the assumption of significant compression in subsidies and transfers. Ultimately, the success of the intentions depends upon implementation.
Union Budget 2023–24 is significant and more challenging for a number of reasons. The Economic Survey placed in Parliament before the presentation of the budget has emphasised that India has staged a remarkable broad-based recovery to reach the pre-pandemic level of income. However, even as it has surpassed that income level, it is still 7% below the pre-pandemic gross domestic product (GDP) trend. Therefore, continued emphasis on accelerating growth is a top priority. At the same time, with the interest payment exceeding 40% of the net revenues, the total liabilities of the union are estimated at 63% of GDP. With the aggregate fiscal deficit of the union and state governments hovering around 9%–10% of GDP and the household sector financial savings constrained at just about 8.5% of GDP, there is hardly any borrowing space for the private sector. Given that macroeconomic stability is predominantly in the union government domain, the budget has the onerous task of balancing between accelerating growth and stability through fiscal consolidation.
The balancing had to take into consideration the compulsions posed by both domestic and global problems and shocks for three years. The union budget had the difficult task of providing policy signals for continued recovery to reach the pre-pandemic growth trajectory. This warranted spurring the growth engines through upscaling public consumption and investment, ensuring a more open economy to provide the impetus for exports and leaving an adequate borrowing space for private investments by reducing its own draft on the household sector’s financial savings through fiscal consolidation. The global economy has considerably slowed down and about a third of it is in a recession.
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