In the balance between fiscal prudence and promoting growth, Finance Minister Nirmala Sitharaman might have to channel Baahubali at the upcoming Union Budget in order to control the fiscal deficit while ensuring growth is not impacted, according to Nilesh Shah, MD of Kotak Mahindra Asset Management.
“Have you watched Baahubali movie? You notice the hero drew three arrows and killed three persons at the same time. Well, FM should copy it – increase infrastructure spending, maintain path of fiscal prudence and raise non-tax resources. These are not impossible things,” Shah said.
He was speaking as part of a panel discussion at businessline’s ‘Count Down to Budget 2023’ event held in Mumbai on Friday.
On revenue expenditure
“What will probably come out in this Budget is what I like to call clever populism,” said Aurodeep Nandi, Vice-President and India Economist, Nomura. Government spending on subsidies is likely to come down in FY24, he said, adding that the government needs to focus on reducing its revenue expenditure to maintain the fiscal deficit.
Budget is not a tool for promoting growth, that is the role of the private sector, said Madan Sabnavis, Chief Economist at Bank of Baroda, adding what he’d really like to see in the Budget is “some kind of comfort provided to the middle class, salaried earners” as it is long overdue and will help boost consumption.
Despite of the limitations because of nominal GDP growth slowing down, the government should continue to maintain its focus on capex, especially in the infrastructure sector as that has a huge multiplier effect and will also eventually encourage the private sector to invest more, said Rajani Sinha, Chief Economist at CareEdge.
The economists agreed that despite the challenges such as lower nominal growth and recession in global economy, fiscal deficit target for FY24 could be pegged 5.8-5.9 per cent of GDP.
There was also consensus that there should be no tax increases, but rather higher revenue should be garnered through tax buoyancy. Direct cash transfers and doles were also not recommended by the economists due to the inflationary effect; they preferred consumption to be boosted through the other policies implemented in the Budget.
Borrowing programme
The panelists pegged the borrowing programme for FY24 at ₹11-17 lakh crore.
“At 5.8 per cent fiscal deficit, borrowing programme will definitely be above ₹11 lakh crore. So how do we manage passage of borrowing programme when liquidity is down about 75 per cent,” Shah said, adding that how RBI manages it will be key to the market absorbing this borrowing programme.
Sabnavis added that the government also has a number of redemptions lined up which add to the pressure on the market and thus, will require intervention and fine-tuning by the RBI, and more monetary actions to ensure smooth yield movement. The panel was moderated by Lokeshwarri SK, Data Editor, businessline.
The event was presented by Bank of Baroda Credit Cards and powered by the World Gold Council along with Banking Partner, SBI, while the Venue Partner was NSE.