Modi govt’s final full budget to focus on welfare spending

New Delhi: Wall Street major Goldman Sachs does not expect any significant reforms to be announced in this budget, but some details on incentives for ‘Make in India’, a roadmap on direct tax code implementation, and rationalization of subsidies, particularly fertilizers.

The Indian Union budget will be presented on February 1 as the final full-year budget under the current administration before the national elections in mid-2024.

This comes at a time when the government is trying to weigh expenditure priorities around: welfare spending before the general elections, the reduction of subsidies as commodity prices have declined from previous highs, incentives for promoting manufacturing in India, continuing the infrastructure build out and a higher allocation for defence, Goldman Sachs said in a report.

“Given the general elections scheduled to take place in 2024, we expect the government to increase rural and welfare spending as seen in pre-election budgets in FY09, FY14 and FY19. In FY24, we expect current expenditure (excluding interest and subsidy) to be at 7.3 per cent of GDP. Rural employment and housing are likely to be in focus,” it said.

With India running one of the highest public debt to GDP ratios among emerging markets globally, firm adherence to the fiscal consolidation would seem the most appropriate path for the government.

The commodity shock required incremental spending on food and fertilizer subsidies, and exhausted the fiscal room from higher tax buoyancy in the current fiscal year. This apart, the government also tabled extra demand for spending before the parliament, comprising 0.8 per cent of GDP (Rs 2.2 trillion) mainly towards capital expenditure, rural development, and defence, Goldman Sachs said.

“We expect the government to meet the budgeted fiscal deficit target of 6.4 percent of GDP1, but estimate an expenditure reallocation of 0.3 per cent of GDP from other current spending,” it said.

While uncertainty remains around the realization of disinvestment receipts, both direct and indirect taxes so far in the year are tracking well ahead of budget estimates. “We expect the Central government to consolidate its fiscal deficit to 5.9 per cent of GDP in FY24, fully driven by a reduction in food and fertilizer subsidies, and project tax revenues to remain buoyant in the year, Goldman Sachs said.

Meanwhile, Union finance minister Nirmala Sitharaman said this week that India will leverage its strengths such as the knowledge industry, the digital capability and the demographic dividend to drive the country’s economic development and become a powerful engine of global growth.

India will certainly be playing on its demographic dividend because it is going to have nearly 68% of all its population in the “working, productive age group” by 2030, she said.

Global economy staring at two recessions in same decade 

New Delhi: Global growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine, according to the World Bank’s latest Global Economic Prospects report.

Given the fragile economic conditions, any new adverse development — such as higher-than-expected inflation, abrupt rise in interest rates to contain it, a resurgence of the Covid-19 pandemic, or escalating geopolitical tensions — could push the global economy into recession.

This would mark the first time in more than 80 years when two global recessions have occurred within the same decade, the World Bank said.

The global economy is projected to grow by 1.7 per cent in 2023 and 2.7 oer cent in 2024. The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95 per cent of advanced economies and nearly 70 per cent of emerging markets and developing economies.

“The crisis facing development is intensifying as the global growth outlook deteriorates,” said World Bank Group President David Malpass.

“Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates. Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change.”

In the US, growth is forecast to fall to 0.5 per cent in 2023 — 1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970.

In 2023, euro-area growth is expected at zero per cent — a downward revision of 1.9 percentage points. In China, growth is projected at 4.3 per cent in 2023, 0.9 percentage point below previous forecasts.

Excluding China, growth in the emerging markets and developing economies is expected to decelerate from 3.8 per cent in 2022 to 2.7 per cent in 2023, reflecting significantly weaker external demand compounded by high inflation, currency depreciation, tighter financing conditions, and other domestic headwinds.

The report offers the first comprehensive assessment of the medium-term outlook for investment growth in emerging markets and developing economies. Over the 2022-2024 period, gross investment in these economies is likely to grow by about 3.5 per cent on average — less than half the rate that prevailed in the previous two decades.

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