High on optimism, but lot depends on global markets

THE GOAN NETWORK | JANUARY 31, 2023, 11:23 PM IST

The challenge for the government in FY24 will be to plan expenditures amid a short-term slowdown, tame inflation and take concrete steps to reduce the fiscal deficit and boost domestic demand. Much depends on the private sector involvement, and in this regard, the Indian government should see private players as co-partners in the growth story (blurb)

The Economic Survey tabled by Finance Minister Nirmala Sitharaman on the eve of the Union Budget presentation forecasts India’s growth at 6.5 per cent in the fiscal year 2024 compared to 7 per cent in the current fiscal year. The rate holds optimism on the premise that the economy is expected to grow faster than the big global economies.

The figures reflect hope and positivity amid a sea of negativity worldwide. The growth projection appears monumental given the global slowdown, especially in exports, worries of global recession, and a declining domestic demand back home.

Another positive element is that the survey looks at life post-pandemic. It expects domestic demand to pick up along with a sharp increase in capital investment. Sitaraman said that the inflation rate peaked at 7.8 per cent in April 2022, indicating that the worst is behind us. However, the fear here is that entrenched inflation may prolong the tightening cycle leading to the cost of borrowing remaining high.

The economic survey has a mix of confidence and optimism, but there are riders since assessments and projections primarily depend on global economies and developments overseas. If we recall, budget estimates drawn last year went haywire less than a month after tabling, and inflation hit the roof because of the Russia-Ukraine war.

The biggest takeaway from the survey is the government’s resolve to stay the course charted to taper the fiscal deficit to 4.5 per cent of the GDP by fiscal 2026. This remains an uphill task, and with a cut of 60 basis points every year needed, this remains another monumental challenge.

A lower fiscal deficit-to-GDP ratio will do a world of good and reduce pressure on domestic interest rates. The worry, however, is over the widening current account deficit that could directly impact the growth and depreciation of the rupee. Also, the rupee may come under pressure if CAD widens further.

Vis-a-vis international markets, the biggest challenges for India remain over rising commodity prices, further rate hikes by US Federal Reserve, the rupee decline and shrinking global market size.

The survey amplifies India’s growth, and the narrative is in sync with the ‘aache din’ that the Narendra Modi government promises. However, there are areas of concern for the common man because the survey draws a roadmap that rests on a lot of permutations and combinations.

The challenge for the government in FY24 will be to plan expenditures amid a short-term slowdown, tame inflation and take concrete steps to reduce the fiscal deficit and boost domestic demand. Much depends on the private sector involvement, and in this regard, the Indian government should see private players as co-partners in the growth story. A crucial parameter to watch out for is the gross borrowing number.

The government has done a commendable job in doing the heavy lifting on capital expenditure. However, against the rosy picture that is projected, there is a tinge of scepticism over the sincerity since there is an election ahead. The bottom line is we are still living in an uncertain world.


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