Delhi, India: The government will attempt to reduce its fiscal deficit by presenting its annual budget to parliament on Wednesday. In addition, it will increase state spending and provide incentives for investment in order to support an economy that is impacted by the global slowdown.
See also: Officials have stated that, despite the fact that the government faces elections in key states this year and a national vote in 2024, the budget for 2023 India will focus on long-term growth and is unlikely to provide significant relief to households due to fiscal constraints.
Prime Minister Narendra Modi has increased capital spending, including on roads and energy, since taking office in 2014. He has also wooed investors with lower tax rates, labor reforms, and subsidies for poor households to win their political support.
It is widely anticipated that Finance Minister Nirmala Sitharaman will continue this policy and announce an increase of 10% to 12% in budget allocations for projects in rural areas, education, and health care, aided by an increase in tax collections.
Gopal Krishna Agarwal, a spokesperson for Modi's Bharatiya Janata Party in charge of economic affairs, stated, "The annual budget will continue economic reforms."
He stated that "the economic recovery ahead of the national elections would be helped by the easing of retail inflation, higher state spending, and growing bank credit."
However, Modi's economic policies, according to critics, have largely benefited big businesses while increasing the tax burden on middle-class families, resulting in lower growth in real income and employment.
The annual Economic Survey from the finance ministry was released on Tuesday. It predicted that the economy could grow by 6% to 6.8% year-over-year in the next fiscal year, down from the 7% expected for the current year. It also warned about the impact that the slowdown in the world would have on exports.
According to the report, "India's growth outlook seems better than in the years before the pandemic, and the Indian economy is prepared to grow at its potential in the medium term."
The Indian economy is expected to expand by 6.1% in 2023/24, down from 6.8% growth in this fiscal year, according to the International Monetary Fund.
India, like many other economies, is vulnerable to the global slowdown, which would have an effect on domestic production and exports. In addition, higher global prices for fuel and commodities led to an increase in inflation and increased interest rates, both of which have slowed economic expansion.
Since May 2022, the Reserve Bank of India has increased its benchmark policy rate by 225 basis points in an effort to contain retail inflation, which rose to over 7% as a result of an increase in the cost of food and energy following the war in Ukraine.
The economy has slowed down after expanding by 8.7% in 2021/22, when it was helped by the recovery from the pandemic's 6.6% contraction.
According to officials, the federal government is likely to reduce its fiscal deficit from 6.4% of GDP in 2022/23 to between 5.8% and 5.9% in 2023/24 because it is concerned about the rising public debt.
Subsidies for food and fertilizer are expected to be reduced by nearly $17 billion, and the government has already stopped the free food program that was in place during the pandemic.
However, officials stated that Sitharaman could modify tax regulations, including by modifying the structure of the capital gains tax to encourage investment.
They added that she is also likely to increase investments and production-linked incentives for additional sectors in order to meet India's target of zero carbon emissions by 2070.
According to a poll conducted by Reuters, the government is expected to borrow a record 16 trillion rupees in 2023 and 2024.