W Power 2024

A pro-growth, surprise-free budget

The government indicated that it will do the heavy lifting to drive capex, in the absence of private sector capex. It announced tax reliefs and benefits for small businesses, all aimed at driving inclusive growth. But the biggest challenge will be global economic headwinds, with a recession looming

Salil Panchal
Published: Feb 1, 2023 05:41:20 PM IST
Updated: Feb 6, 2023 06:42:01 PM IST

Sitharaman used all the right buzzwords to revive investor confidence Image: Adnan Abidi/ ReutersSitharaman used all the right buzzwords to revive investor confidence Image: Adnan Abidi/ Reuters
Finance Minister Nirmala Sitharaman presented a frills- and surprise-free Budget for FY24, aimed at driving economic growth in a global scenario, where a recession looms large for most large economies. India, in that backdrop, appears well placed, compared to Western economies, with the country estimated to grow at 6.8 to 7 percent for the 12 months ending March 2023.

Sitharaman used all the right buzzwords to revive investor confidence: Including a higher government capex allocation of Rs10 lakh crore, sops for small businesses through a Rs9,000 crore corpus for a revamped Credit Guarantee Scheme, revamping income tax slabs for individuals and maintaining fiscal deficit prudence. For SME businesses, which are seen as a lifeline for the economy, through job creation, it is being seen as a big booster.

Rahul Bijoria, chief economist at Barclays India, says the FY24 Budget “sets realistic revenue targets and prioritises expenditure prior to an election year, and proposes modest fiscal consolidation, along expected lines”. Investors cheered all these moves after the Budget announcements, with the BSE Sensex gaining over 1,128 points or 1.89 percent to a high of 60,767.04 points in early afternoon trade before losing most gains—due to corporate-related news—at the close.

The FY23 fiscal deficit was broadly retained at 6.4 percent of GDP, with the FY24 deficit pegged at 5.9 percent of GDP, broadly in line with market forecasts. “The government maintained its intention to meet the medium-term fiscal-deficit consolidation glide path, and expressed confidence about reducing the fiscal deficit to 4.5 percent of GDP by FY26,” says Bijoria.

Umang Papneja, CEO of Julius Baer, is confident with the fact that the government has taken the responsibility to do the heavy lifting when it comes to government capex spending, due to higher inflation and slower growth in those regions.

Also read: MSMEs, growth engines of the economy, get a major boost in Budget 2023

“The key takeaway is the capex spend by the government for the coming 12 months. In times like these where the global economies are slowing, the government needs to spend more and that is what India is doing. The government is clearly focussed on increasing the capital formation and enhancing the potential for job creation across sectors,” Papneja says.

“We are confident that the government will be able to achieve the lower 4.5 percent fiscal deficit target over time. India did not go into a massive borrowing spree during the pandemic years, and the government is taking steps to sequentially bring the fiscal deficit down,” Papneja adds.

Bankers are equally confident that the government has presented an inclusive growth Budget. “India is well-positioned on a strong growth path and we feel the Budget arithmetics are right,” says Rajiv Anand, deputy managing director at Axis Bank.

Banks have been in a sweet spot for the past 12 to 15 months due to improved capitalisation, lower percentage of bad loans and improved credit growth. Future lending will depend on how much banks are able to garner through deposit and income growth.

Anand also says the move to provide relief for individuals in the new tax payment regime, besides removing the surcharge for the higher income bracket, will be beneficial. Others felt that some amount of consistency has been followed, from previous budgets. Alok Saigal, president and head, Nuvama, says: “This Budget builds on the previous year’s budgets. There is consistency and a continuation of policies, which is a positive.”

Also read: The 'Goldilocks' budget for growth

India will continue to depend on domestic consumption demand and services growth to drive the economy in FY24. In this scenario, exports may not be able to generate more growth in the current calendar year, considering that the larger western economies of the US and much of Europe are buying fewer products.

Papneja also welcomed the lowering of surcharge for high net worth individuals, which will effectively bring down the tax rate to 39 percent.

With the Budget announcements complete, the focus will shift towards the global central banks’ behaviour to tackle inflation. Slowing economic growth will impact several export-oriented corporates.