India budget deficit to widen to 6.7 pc of GDP in FY 2023-24 : GlobalData

While global economic scenario remains gloomy, India's budget deficit to widen to 6.7 pc

All eyes will be focused on Union Finance Minister Nirmala Sitharaman when steps up to present the Union Budget of India 2023-24, in the Lok Sabha on February 1. For, the budget comes at a time when the global economic scenario remains gloomy and external conditions remain tough.

GlobalData, a leading data and analytics firm, says that the budget is expected to focus on capacity expansion, job creation, domestic demand, and initiatives to boost the domestic manufacturing and digital economy. Against this backdrop, GlobalData forecasts the budget deficit of India to widen to 6.7 pc of GDP in FY2023-24 from 6.4 pc of GDP in FY2022-23.

In a press statement, the company says that reducing the corporate tax rate may make the Indian economy more competitive globally. Presently, only manufacturing companies that invest in new manufacturing facilities get a reduced tax rate of 15 pc as an incentive. GlobalData expects this incentive to extend to all companies in the upcoming budget. Also, the budget must focus on easing and simplifying regulatory burdens including the procedure and time to start a business, pay taxes, and enforce contracts.

“To keep the domestic demand buoyed amid the gloomy external conditions, the budget must increase the tax exemption limit from the current INR 250,000. As a result, the increased disposable income of the public is expected to drive the real household expenditure growth. On the other hand, income tax deduction limit for home loan, which has been kept unchanged at INR 200,000 since 2015, must be raised amid the high interest payments that are impacting the finances of the taxpayers,” says Puja Tiwari, Economic Research Analyst at GlobalData.

In a press statement, GlobalData says that the budget is expected to increase capital expenditure for the development and modernisation of roads and railways. It will not only provide a boost for the construction and allied industries but also create employment opportunities. To re-build the investor’s confidence, focusing on developing production-linked incentive (PLI) schemes across industries remains a key that will also augment Make in India initiative through robust private investment.

The statement adds that the budget is also expected to provide a digital push through the launch of digital currency and may also establish digital banking units, which would encourage the digitalisation of the sector as well as faster recovery of non-performing assets. Research linked incentive schemes must be encouraged across sectors for the promotion of investments in innovation.

With the aim of making the future green, the government is expected to create electric vehicle (EV) charging infrastructure for faster adoption of EV’s by launching green bonds to mobilise resources. GlobalData expects support for sustainable tourism. The budget may also increase in the number of Vande Bharat trains for faster commuting, says GlobalData.

On the disinvestment front, the government is expected to be more conservative in its target in this year’s budget ahead of elections as previous targets were not met.

General expectations

‘‘GlobalData expects the budget to focus on creating jobs for the youth through higher allocation towards talent development and digital skill-training in schools and universities and encourage entrepreneurship. Other expectations include strengthening rural healthcare infrastructure as well as reduction in GST on premium of health insurance to enhance the awareness on preventive healthcare. Healthcare is expected to see increase in this budget as the government targets to increase its spending on healthcare to 2.5 pc of GDP by 2025. Soaring fuel prices are raising the overall prices of goods and services across industries. One of the major expectations from this budget is to bring fuel under the Goods and Services Tax (GST) ambit which may help cool down the high energy prices through removal of multiple layers of taxes. This is expected to significantly improve the logistics and help accelerate the economic growth,’’ adds Tiwari.

“The upcoming budget is expected to create a road map for the faster economic growth amid the rapidly changing global scenario through reforms, policy interventions and focus on encouraging entrepreneurship. Although the Indian economic growth is projected to slow down to 5.73 pc in FY2023-24 from an estimated 6.91 pc in FY2022-23, according to GlobalData, it will be still one of the fastest growing major economies,” says the statement.