Budget 2023: Budgeting For Sustained Growth

The forthcoming Budget 2023 is expected to be yet another continuing link in the efforts to make this the India Decade

By Richa Gupta & Rumki Majumdar


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The Union Budget is only about a week away. A couple of apt words for the current state of the Indian economy can perhaps be 'cautious optimism'. India continues to be one of the fastest, if not the fastest growing economy in the world.The general expectation is that for FY 2022-23, India's GDP growth rate will be around 7 per cent. However, if India must attempt to reach the pre- pandemic levels of income, then it needs to have a sustained growth rate of over 8 per cent. Therefore, a lot depends on whether the policies and their execution can buildand maintain the momentum for this sustainable growth.

The welcome news is that India has continued to grow despite the several challenges like the Russia- Ukraine war, its impact on inflation, supply chain disruptions, wideningcurrent account deficit and currency depreciation. The rupee declined from 74.4 on January 2022 to 82.5 at the time of writing. Paradoxically, in spite of this steep decline, in real terms, our exports are still not competitive as other currencies saw a greater depreciation.

If we were to compare India's growth trajectory with the world economy, then as the following chart depicts, India has clearly been growing much faster than the world economy over the past five years, with the exception of the year 2020.

World and Indian GDP growth rate (per cent) 2018-2022

This is not to say that the Indian growth story is decoupled from the global narrative. The Indian growth dynamics are very much impacted by global developments. What India needs s is improved linkages with the global supply chain. With China opening, the global supply constraints are expected to ease and additions to existing global manufacturing capacity will be governed by whether there is sufficient expectation of a recovery in global demand. Without a positive world economic outlook, outside of the Budget, an important input to accelerating India's linkages can come from bilateral and/ or regional Free Trade Agreements.

In the meanwhile, for the coming fiscal, the challenges are expected to continue, along with a growing fear of a looming global growth slowdown, thereby increasing the pressure on current trade and current account imbalance. Inflationary trends appear to be easing but the inflation indices are still expected to remain higher in the monetary comfort zone. A greater part of inflation is due to food prices. Herein, the government can take a longer- term view to build infrastructure to optimizenational food and agribusiness supply chain along with the oft repeated need for developing and incentivizing sustainable agri- practices and micro irrigation network. Apart from this, enhancing efforts towards multi-modal infrastructure connectivity with the specific objective of ensuring complete last-mile connectivity can help to affect a downward shift in logistics costs and improving the productivity across the agri- supply chain.

While the upcoming Budget can be expected to continue with the infrastructure spends and Digital India and Make in India push, FM could do well to also provide incentives to the services sector. India has been a service led economy and our comparative advantage is well documented and expansion in both manufacturing and services are required to ensure that we do not fall into the trap of jobless growth. Post Covid, unemployment indicators have shown some improvement, but wage growth is still lagging inflation. Domestic demand drives the India story and reforms required to encourage supply of education, healthcare, and finance is what can be expected to determine the fate of Indian demographic opportunity.

The forthcoming Budget 2023 is expected to be yet another continuing link in the efforts to make this the India Decade.

Richa Gupta & Rumki Majumdar

Partner, Deloitte India and Economoist, Deloitte India

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