Finance Minister Nirmala Sitharaman will present her fifth and this government’s last full-fledged Budget on February 1, before the Lok Sabha election in 2024.
Although certain electoral overtures may be made in an interim Budget next year, the Bharatiya Janata Party-led government will also keep the flurry of State elections slated through 2023 in mind. Ms. Sitharaman faces the difficult task of balancing the pulls and pressures on fiscal resources in the face of multiple converging headwinds, with one eye on creating a feel-good factor among voters and the other on demonstrating appropriate resolve to address India's twin deficit situation and steer growth. This year's robust tax receipts provide reassurance that the fiscal deficit target of 6.4% of GDP would be met.
The Finance Minister will need to demonstrate a compelling glide route to the 4.5% GDP objective set for 2025-26, but the rising current account deficit is a more pressing worry. In the second quarter of this year, the goods trade deficit reached an all-time high, with net exports being the biggest external 'pull' on demand since late 2012-13. Ms. Sitharaman will seek to boost customs charges on non-critical items in order to reduce the import bill, while also attempting to guarantee that Indian producers do not lose access to global value chains due to exorbitant or inverted duty regimes for inputs and intermediates.
Even if the Western world's recession is less than expected, the export engine that has recently fueled India's economy is likely to falter this year. Growth will be lower than the 7% predicted for this year, and the key will be to keep it from falling below 6%. The Budget will maintain the public capex push, despite the fact that private investment has yet to return across the board. A portion of the remaining resources will be set aside for increased rural and social welfare spending, such as food and fertiliser subsidies and programmes like MGNREGA and PM-KISAN.
Defence expenditure plans will be severely scrutinised, given they have been reduced in successive pre-election Budgets. Constituencies in need of assistance, such as the working middle class, want a revision of the tax exemption ceiling (established at 2.5 lakh per year in 2014) and other measures to mitigate the impact of rising inflation on spending power.
The government has not played to this gallery much during its tenure, maybe because it is not a vocal or unified interest group like farmers and corporations. With an uneven rebound in consumption holding down the investment cycle, putting money in people's hands to boost spending and facilitating more job possibilities for the youth would be India's best option for driving growth in the face of a volatile global economy.
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