If the Budget makes no big announcements on new schemes, projects, or tax giveaways, the government would face a major political dilemma as it may have to reluctantly consider shunning the practice of unveiling pre-election sops to woo voters, notes A K Bhattacharya.
Finance minister Nirmala Sitharaman on Wednesday exuded confidence that inflation would further decline and the government is on track to meet its budgetary target for deficit and said that there is no fear of stagflation in India. Replying to the debate on first batch of Supplementary Demands for Grants 2022-23 in Lok Sabha, the finance minister said inflation has come down and it is now in the tolerable band of the RBI. Inflation has been declining since April 2022 and it is declining further, she said.
The health of Indian banks continued to improve in 2021-22 with their balance sheet growing at double digits after a gap of seven years and their asset quality and capital position bettering, the Reserve Bank of India (RBI) said in its annual report on trend and progress of banking in India. At the same time, the banking regulator flagged the issue of slippages from restructured accounts. "Going forward, it is imperative that banks ensure due diligence and robust credit appraisal to limit credit risk," the report said.
Within three trading sessions in May, foreign portfolio investors (FPIs) have pumped in Rs 9,461 crore into Indian equities. This follows net inflows worth Rs 7,936 crore in March, and Rs 11,631 crore in April. The trend, analysts said, could continue going ahead as the US Federal Reserve may soon halt its interest rate hike cycle, which will strengthen foreign fund inflows into emerging markets, including India.
In the coming months, globally as well as in India, rice might remain a hot potato.
Fiscal consolidation is keenly awaited.
The challenge before the government now is to use the factors that are favourable to its benefit.
Low consumer demand, a slide in investments and troubles in the banking sector should prompt the government to recalibrate taxes and expenditure. It is also important to ramp up spending on health care and education, says CII president Sumit Mazumder.
The budget-making exercise offers golden opportunities despite challenges, observes Shankar Acharya, former chief economic adviser to the Government of India.
RBI's surprise rate cut has revived sentiments of India Inc.
Market participants say the focus of Finance Minister Pranab Mukherjee will be on fiscal deficit, more so in the wake of the recent debt crisis in some Europeon countries.
As the FM said, this is a Budget that lays the foundation for the next 25 years, observes Kumar Mangalam Birla.
This Budget plans for an increase to 10.3% of GDP from 9.9%.
The government has hiked gold import duty to 15 per cent from 10.75 per cent to check the current account deficit (CAD) and rising import of the yellow metal. The duty changes came into effect on June 30. Earlier, the basic customs duty on gold was 7.5 per cent, now it will be 12.5 per cent.
Budget for 2022-2023 has returned to its agenda for protectionism in the name of creating a self-reliant India, points out A K Bhattacharya.
Industry body CII has pitched for a reduction in personal income tax rates, decriminalisation of the goods and services tax and a relook at the capital gains tax rates as part of its agenda presented to the government for the forthcoming Budget. Arguing that the GST law already contains adequate penal provisions for deterrence against evasion of taxes, CII has suggested decriminalisation of GST law. Also, the applicability of prosecution provisions should not be based on the absolute amount of tax evasion but should be based on real intent to evade the taxes and a certain percentage of the tax payable, it stated.
'If because of El Nino, the monsoon is affected adversely in the current year, naturally it will affect income projections and consequently Budget numbers.'
But their trajectory and direction have been largely influenced by politics and the political leadership's understanding of how the economy needs to be managed, explains A K Bhattacharya.
Can the finance minister manage our expectations, asks A K Bhattacharya.
Although India's share in the world toy trade has marginally improved, it still lags behind China's. Toys are not China's main item of export, but about two-thirds of the toys sold globally are from China. The world exported toys worth $73.2 billion in 2021: China accounted for 66.2 per cent, or $48.5 billion of that, out of which mainland China made up $46.1 billion and Hong Kong $2.4 billion.
Macroeconomic management is usually a lot more comfortable with lower fiscal deficits. The sooner we get there, the better for the economy, says former Chief Economic Adviser to the Government of India Shankar Acharya.
Finance Minister Nirmala Sitharaman will have to do a tight-rope walk between staying fiscally prudent and general public expectations of lower taxes and a wider social security net, while at the same time firing the engines of the economy before general elections. Sitharaman will on Wednesday present her fifth straight Budget at a time when the economy is slowing due to global headwinds and specific sectors need attention. In the run-up to the Budget presentation, expectations are rife that she may tweak income-tax slabs to provide relief to the middle class and increase spending on the poor through programmes such as the rural job scheme while ramping up financial incentives for local manufacturing.
India's current account deficit is expected to deteriorate in the current fiscal on account of costlier imports and tepid merchandise exports, according to the Finance Ministry's monthly economic review. The review released on Thursday by the ministry also said that global headwinds would continue to pose a downside risk to growth as crude oil and edibles, which have driven inflation in India, remain major imported components in the consumption basket. For the present, it said, "their global prices have softened, as fears of recession have dampened prices somewhat. This would weaken inflationary pressures in India and rein in inflation."
Senior tax officials were told to focus on cash collection from the arrears so that the target for FY23 was achieved and the overall revenue position improved.
'The finance ministry's decision to accept the deficit target of 4.5 per cent in 2025-2026 appears to have emanated from its endorsement of the Finance Commission's view that the Indian economy will continue to remain impacted by the pandemic, adversely undermining its growth potential,' notes A K Bhattacharya.
'We forecast real GDP growth to moderate to 6.7 per cent in the year ending March 2018.' 'However, as disruption fades, we expect to see a rebound in real GDP growth to 7.5 per cent in the next fiscal year.'
The decline in gold imports has helped in narrowing the country's trade deficit to $106.84 billion during the eight-month period under review as against $133.74 billion in the year-ago months.
The bulk of states' revenue comes from the devolution from the Centre's divisible tax pool, GST, VAT on petroleum, and excise duty on alcohol.
Among the current FTAs with significant trade deficits for India, five are with countries from the 10-nation Asean bloc. Exports to the 10 economies stood at $ 37.4 billion in 2018-19, up by 9% year on year. On the other hand, imports were higher at $ 59.31 billion, up by 25% from the previous year's $ 47.13 billion.
The external environment has worsened further. While the Finnish economy entered into a recession, Swedish economic growth also dipped. The Finnish gross domestic product (GDP) dropped 0.6 per cent in October-December, 2022. It was the second quarter of negative growth, which is a technical definition of recession.
In the last five years, imports from HK have more than tripled -- from $5.6 billion in FY15 to $17.1 billion in FY20. In the same period, exports declined by 20 per cent -- from $13.6 billion in FY15 to $10.8 billion (annualised) in FY20.
The Reserve Bank of India (RBI) will make its bi-monthly policy announcement next week. The macroeconomic backdrop to this event is perhaps the most reassuring in the past several quarters.
It would not be surprising if India, the world's largest producer of milk, has to resort to imports to meet the elevated summer demand, states Surinder Sud.
Sitharaman's Budget missed deficit target for the third year in a row, pushing shortfall to 3.8 per cent of GDP in the current fiscal as compared to 3.3 per cent previously planned.
IThe fiscal deficit target for 2020-2021 was originally set at 3.5 per cent of GDP. But the government's revenues have collapsed and its expenditure burden will only increase over the Budget estimates.' With the government having already planned for an additional borrowing of over Rs 4 trillion, the fiscal deficit for the current year would be much higher than the Budget estimate, notes A K Bhattacharya.
Any reduction in devolution could aggravate the strained relations between the Centre and some opposition-ruled states on a number of issues, including CAA.
Equity benchmarks Sensex and Nifty ended on a mixed note on Wednesday as the euphoria about the Budget fizzled out, with investors going for profit-taking ahead of the Fed interest rate decision. The 30-share BSE benchmark Sensex climbed 158.18 points or 0.27 per cent to settle at 59,708.08 after it trimmed most of the intra-day gains. During the day, it had zoomed 1,223.54 points or 2 per cent to 60,773.44.
'I'm pitching India for the strengths we offer, including the English language, engineers, doctors, nurses, professionals, innovative talent of startups.'
While most experts suggest the government loosen its purse strings and not worry about the fiscal deficit in a pandemic impacted year, it will be a tightrope walk for the government to increase spending without going overboard.
