Union Budget 2023-24 has fallen into the trap of lower growth prospects that has been estimated downwardly for the current fiscal 2022-23 ending on March 31, 2023, and also for the financial year 2023-24. The Union Finance Ministry is under acute pressure of resource mobilization to fund social sector schemes that are politically sensitive since the Union Budget 2023-24 would be the last full pre-election budget before the Lok Sabha Election 2024. The challenges the Union minister of finance is facing can only be imagined by the fact that the GDP for BE 2022-2023 was projected at Rs 2,58,00,000 crore assuming 11.1% growth over the estimated GDP of Rs 2,32,14,703 crore for 2021-2022 (RE). However, the assumption has gone wrong, posing a great challenge of balancing the budget allocations amidst great fiscal constraints. The assertion of the OECD Economic Outlook of November that “India is set to be the second-fastest growing economy in the G20 in FY 2022-23, despite decelerating global demand and the tightening policy to manage inflation pressures” has only a euphemistic value in the popular mind, but such statements do not help in facing the harsh reality of financial shortfall.
The World Bank also revised India’s growth forecast in December for the current financial year at 6.9 percent. Deloitte Insights had put it in October between 6.8-7.1 percent, Fitch had put it in December at 7 percent, and IMF had projected it in December at 6.8 percent, and so on. The Reserve Bank of India has also pegged GDP growth for the current financial year at 6.8 percent. Moreover, most of the assessment agencies have not ruled out a further downward assessment given the domestic and global uncertainties. Thus, we see that India, in any case, would grow much below the Union Ministry of Finance’s budget calculations at 11.1 percent of the growth in GDP. OECD had projected further deceleration of the GDP growth to 5.7 percent for the financial year 2023-24. RBI had said in December that India’s GDP growth in the first half of 2023-24 was expected in the range of 6-6.6 percent, and at 5.5 percent in 2023-24. The IMF had said in their December forecast that India would be growing at only 6.1 percent in 2023-24, while the World Bank had downward revised its forecast to 6.6 percent.
Naturally, the Union Government’s thrust on CAPEX is to be continued while private sector participation would be less than modest. However, the Union government does not find itself to considerably increase the investment rate, i.e., GFCF in the percentage of GDP, in the country because of decelerating GDP growth rate in 2023-24. It should be noted that the investment rate was estimated to be 33.4 percent for the current fiscal. There is likely to be a deceleration in India’s gross value added (GVA) growth, which CMIE has estimated to be only 5.5 percent for 2023-24 as against 6.4 percent in the current fiscal 2022-23. Deceleration is expected in all sectors except manufacturing. GVA in agriculture would decline from 3.7 percent in 2022-23 to 2.7 percent in 2023-24 since the production of all major crops is expected to fall. Rural areas, therefore, have brought major concerns in this pre-election budget. Budget making for 2023-24 has therefore become complex and tricky and limiting revenue and the fiscal deficit remains a tough challenge.