Economists on Monday exhorted the government to keep up the focus on achieving high growth rates on a sustained basis by continuing to take more reform initiatives amid strong external headwinds, sources told FE.
In a pre-Budget consultation meeting with finance minister Nirmala Sitharaman, some of them lauded the government’s enhanced capex push to stimulate economic activities, because sustaining growth momentum would be a challenge in the next fiscal as the favourable base effect diminishes.
The economists wanted the Centre to ensure reasonable amount of fiscal consolidation for FY24 without curbing productive spending, one of the sources said. The Centre aims to trim its fiscal deficit to 4.5% by FY26, against the targeted 6.4% for the current fiscal. They also called for aggressive asset monetisation, meaningful privatisation initiatives and a reduction in the elevated import tariffs.
With this, Sitharaman concluded her consultations for the Budget for the next fiscal, which were held since November 21. “More than 110 invitees representing seven stakeholder groups participated in eight meetings (until Monday),” the finance ministry said in a statement.
Various agencies have already trimmed their growth projections for India, and the world, in recent months amid the external turmoil. The projections for the next fiscal are gloomier. So, the Budget is expected to announce measures to keep up the pace of growth, even as a global slowdown will hurt India’s prospects as well.
The stakeholders have presented Sitharaman with a plethora of suggestions, including a reduction in income tax for individuals, an urban employment guarantee programme, enhanced spending to spur growth and incentives for certain industries.
They also want the next Budget to focus on a mechanism for green certification to help MSMEs, schemes for improving domestic supply chains, reduction of taxes on electric vehicles (EVs), the introduction of EV policy, measures to promote India as a hub for green hydrogen, a portable social benefit for children and coverage of unorganised workers under ESIC scheme and further deepening the bond market.
The suggestions come amid fears that the government may apply the brakes on its reforms drive in view of the upcoming Lok Sabha elections in 2024. Another proposal to privatise two state-run banks also faces strong opposition from bank unions.
The customary consultation exercise was undertaken this year amid mounting external challenges emanating mainly from the Russia-Ukraine war. The interest rate tightening by key central banks to curb runaway inflation is set to slow down global growth, which has already started weighing down India’s exports. Of course, a resultant easing of commodity prices will augur well for a net importer like India.
Those who attended the pre-Budget meetings included ministers of state for finance Pankaj Chaudhary and Bhagwat Kishanrao Karad and top officials of the finance and corporate affairs ministry.
The economists who attended the meeting included Poonam Gupta, director-general at the National Council of Applied Economic Research; Ashima Goyal, professor at the Indira Gandhi Institute of Development Research and a member of the RBI’s monetary policy committee; Deepak Mishra, director and CEO of Indian Council for Research on International Economic Relations; NR Bhanumurthy, vice-chancellor at Dr BR Ambedkar School of Economics University; Rahul Bajoria, chief India economist at Barclays Investment Bank; Santanu Sengupta, chief India economist at Goldman Sachs; Ashwani Mahajan, national co-convener of the Swadeshi Jagaran Manch; Aditi Nayar, chief economist at ICRA and Madan Sabnavis, chief economist at Bank of Baroda.
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In the aftermath of the pandemic, the government raised its budgetary capex to spur economic growth. It enhanced the capex by as much as 27% on year in FY21, 39% (albeit including equity infusion into Air India Assets Holding) in FY22 and 27% (budgetted) in FY23 — way above the increase in overall Budget size of the relevant years.
As private investments are yet to turn the corner meaningfully, the role of government spending as a growth catalyst remains critical. Between April and September, the Centre’s capital expenditure grew 49.5%, against the budgetted rise of 27%. However, its revenue expenditure rose 6.2%, against the budgetary goal of trimming it by 0.2%.