Union Budget 2023-24: Aiming for paradoxical goals

Amish Mehta, MD & CEO, CRISIL, talks about Union Budget 2023

The last full Union Budget of the Narendra Modi government before another battle of hustings attempts to reconcile seemingly irreconcilable goals — fiscal prudence and economic growth, public welfare and private sector incentives, the short term and the long.

While that, in itself, is a bold attempt, how much of it will bear out will depend on how the global geopolitical and economic situations unfold.

There were familiar and unanticipated elements in this Budget.

First, the expected. The Budget has stuck to the fiscal consolidation path.

By targeting a lower fiscal deficit of 5.9 per cent of gross domestic product (GDP) for fiscal 2024 vs 6.4 per cent this fiscal, it has affirmed commitment to the glide path to 4.5 per cent of GDP by fiscal 2026.

Lowering the deficit in a pre-election year would also add to the policy credibility of the government and boost confidence among domestic and foreign investors. It should reduce government borrowing costs as well.

Two, it has continued to focus on the creation of physical infrastructure by budgeting a huge 30 per cent increase in capital expenditure allocation to Rs 13.7 lakh crore.

While doing so, the pronouncements remain growth-enhancing in the medium run, and intend to stoke consumption by pushing money into the hands of people.

CRISIL Research estimates infrastructure capital spending (Gross Budgetary Support plus Internal Extra-Budgetary Resources) for 11 ministries will see a 24 per cent increase to Rs 8.74 lakh crore next fiscal over fiscal 2023RE.

Substantially higher allocations for railways, roads, urban development and housing should spur investments, create jobs, and support consumption demand.

The difficult part to achieve will be the transition on the expenditure side — away from revenue spending. That’s because trimming the subsidy bill to Rs 4 lakh crore (fiscal 2024BE) from Rs 5.6 lakh crore (fiscal 2023RE) will hinge on a reduction in global crude oil, and food and fertiliser prices.

Nevertheless, a nominal GDP growth projection at 10.5 per cent and modest increases in budgeted tax revenue look realistic.

Our fiscal authorities will have to keep their options open.

The writer is the Managing Director & CEO of CRISIL Ltd. Views are personal