Union Budget 2023: Delicate Act Of Maximizing Fiscal Impulse Amid Consolidation

Policy trade-offs have been quite delicate in the past few years, especially with patchy growth and the steady increase in net public borrowing requirements, hovering around 10% of GDP on average.

Despite the fiscal pressures this year, authorities commendably appear determined to meet the
budgeted gross fiscal deficit (GFD) target of 6.4% of GDP. Even with a substantial consolidation seen in the headline print since Covid (GFD/GDP down to near 2.8% by FY23E since FY21), the
consolidation path from here remains daunting. The FY24 Union Budget will be presented against the backdrop of renewed uncertainties around global and domestic growth and, of course, the Union elections in May 2024. However, even as additional support to some vulnerable segments of the economy is warranted, policy focus is expected to remain on improving growth potential in the medium term, including boosting investment dynamics while maintaining fiscal discipline.

Policies should focus on credible and clearly communicated consolidation, anchored on stronger revenue mobilization and spending efficiency. The Center has laid out a glide path such that GFD/GDP is brought down to 4.5% in three years and, against this backdrop, we expect 0.5%-0.6% of GDP consolidation in FY24, so that the Center's fiscal deficit is pegged close to 5.8% of GDP.