Budget prioritises growth over fiscal consolidation: ICRA Limited MD

The Union Budget FY23 injected a dose of optimism with the country experiencing the third wave of Covid-19. The balance it struck between spending and prudence, entailed a robust 25 per cent increase in capital expenditure, amid a marginal 1 per cent rise in revenue spending and a modest fiscal consolidation of 0.5 per cent of GDP.

The Budget has pencilled in modest 6.0 per cent growth in revenue receipts, dampened by a contraction in non-tax revenues. It has targeted moderate tax revenue growth of 9.6 per cent, which appears realistic given an impending contraction in excise flows, and is fairly close to our own assumption. But, we expect higher inflation to drive a nominal GDP growth of 13.5-14 per cent in FY23, exceeding the budgeted 11.1 per cent.

Ramnath Krishnan, MD & Group CEO, ICRA Limited

Setting aside the funds intended as equity infusion into Air India Assets Holding Limited ahead of its divestment, the balance capex of the Government of India (GoI) is estimated at Rs 5.5 trillion in the FY22 Revised Estimates (RE). This has been augmented to Rs 7.5 trillion in the FY23 Budget Estimates (BE), well above our forecast of Rs 6 trillion, driven by a large increase for the roads sector, an infusion into BSNL, and Rs 1 trillion as special assistance to states for capital spending.

Higher capex holds the potential of imparting durability to the economic growth momentum in FY23, boosting the prospects of job creation, enhancing domestic consumption, and hastening broad-based capacity expansion by the private sector. While we are enthused by the enhanced target, an early start to the capex surge will remain a key monitorable.

In addition to the targeted infrastructure spending, the Budget contained outlays for several PLI schemes.

Even as the fiscal deficit is set to decline modestly to 6.4 per cent of GDP in FY23 from 6.9 per cent of GDP in FY22, higher outlays came at the cost of a rise in the absolute deficit to Rs 16.6 trillion, from Rs 15.9 trillion. The accompanying higher-than-expected market borrowing figure soured the bond markets’ sentiment, and sharply hardened yields.