The new year has already begun and a new Budget is less than a month away. On the face of it, Finance Minister Nirmala Sitharaman should have reasonable headroom to play around with the numbers in an election year. Growth may be slowing — on the back of a fading base effect — but is still on target to grow at probably the sharpest pace among major world economies in FY2022-23.

Although growth halved in the July-September 2022 quarter to 6.3 per cent in July-September from 13.5 per cent in the preceding April-June quarter and the high 8.3 per cent in the year-ago period, the government’s Chief Economic Advisor V Anantha Nageswaran is confident that the momentum is still positive. The economy, he says, will grow at around 6.8-7 per cent in FY23 and will continue to maintain the pace in the coming financial year as well.

In fact the World Bank, which had sharply cut India’s FY23 GDP growth forecast from 7.5 per cent to 6.5 per cent in October last year, did a turnaround in December, revising its growth projection upwards to 6.9 per cent. Dubbing the Indian economy as being “remarkably resilient” in the face of global headwinds, the multilateral lender also expressed satisfaction at the “strong macroeconomic fundamentals” underlying this growth. The Bank, a notorious fiscal deficit hawk, is particularly pleased that India appears set to meet its fiscal deficit target of 6.4 per cent of GDP.

The IMF too, has pegged GDP growth at 6.8 per cent this fiscal.

There are some “green shoots” indicators suggesting good growth momentum going forward, at least in the immediate term. Early data suggests electricity generation, a key core sector indicator, may grow 8.5 per cent in the December quarter. Automobile manufacturers had a record December, while a massive surge in air travel nearly brought major Indian airports to a standstill in December, prompting an intervention by the government to try and ease bottlenecks at airports.

Other indicators also show robust economic activity. Bank credit grew 17 per cent in the fortnight ending December 16, 2022. The World Steel Association has projected India’s steel sector — the world’s second largest after China — to grow at 6.1 per cent in CY 2022 and 6.7 per cent in CY 2023. According to government data, in the first eight months of FY23, the core sector — comprising coal, crude oil, natural gas, refinery products, electricity, steel, cement and fertiliser — grew output by 9.2 per cent over the pre-pandemic period of FY20.

Emerging cracks

Will this momentum continue in the coming financial year? This is where cracks start to emerge. While Anantha Nageswaran expects growth to print at 6.5 per cent, not only in FY 24 but in the remaining years of the current decade, others are not so sanguine. In fact global brokerage Nomura said in a recent report that India’s growth cycle has likely peaked and expects growth to moderate sharply to just 5.2 per cent in FY24. This is sharply lower than what others have predicted, including the World Bank’s 6.2 per cent and the IMF’s 6.1 per cent.

So which of these scenarios is more likely to play out in the coming year? Will the picture be rosy or have shades of grey? A hint of the pain points that India Inc is actually experiencing — which it does not publicly articulate when it talks about government actions, which are usually given fulsome praise — lies in the kind of actions it wishes the Finance Minister will take in the forthcoming Budget for 2023-24.

At the top of the wish list for both the CII and FICCI, the two largest industry bodies, is increased government spending on infrastructure. CII suggested that the government’s capital expenditure needs to be stepped up substantially. “For reviving investment, the memorandum recommends raising capital spending to 3.3-3.4 per cent of GDP in FY24 from 2.9 per cent currently, with an aim to increase it further to a 3.8-3.9 per cent by FY25,” the body’s submission to the FM stated. The current capex projection is ₹7.5 lakh crore for FY23. CII wants this to be upped to around ₹8.8 lakh crore and further to over ₹10 lakh crore in FY25 in order to “revive investment”. FICCI too, called for a focus on “physical, social and digital infrastructure.”

Calls of I-T cuts

Across the board, all major industry and trade bodies have also asked for some cuts in personal income tax, to put more money into the hands of the consumer and stimulate consumption demand. Pointing out that “Consequent to the reduction of corporate tax rates, the differential between personal and corporate tax has widened” and that the highest marginal rate for individuals in the highest slab, at 42.74 per cent, was substantially higher that the corporate tax rate of 25.17 per cent, it asked for an across-the-board cut in rates.

FICCI also pushed for bringing in petroleum products under the ambit of GST. This, of course, comes under the purview of the GST Council and not the FM but it is hoping that the FM, who is the GST Council chair, will take the lead on this. “Until the time petroleum products are brought within GST net, suitable amendment in the excise laws be made to allow credit of GST paid on inputs/input services and capital goods against payment of excise duty to the manufacturers of petroleum products,” FICCI suggested.

What this really means is that India Inc expects not to be in a position to make substantial capital investments in the coming year and wants the government to pick up the slack on capital investments instead. The call for cuts in personal income tax is not altruistic either. Despite the uptick in sales in the festive season, India Inc clearly expects consumption demand to slow in the upcoming fiscal and is hoping that the government will re-inject some ‘animal spirits’ by putting more cash into consumer wallets.

With the FM already indicating that the Budget will follow the “spirit” of previous Budgets, these expectations, however, may be belied. Elections or not, a ‘big bang’ Budget appears unlikely. The outlook is decidedly cloudy.

The writer is a senior journalist