Centre eyes ‘reasonably high but stable’ growth in FY24

The central government will have to present its first budget after recovery from the pandemic with priorities to maintain a “reasonably high but stable” growth in 2023-24, besides underscoring fiscal credibility amid continuing geopolitical tensions, an EY India report said

The central government will have to present its first budget after recovery from the pandemic with priorities to maintain a “reasonably high but stable” growth in 2023-24, besides underscoring fiscal credibility amid continuing geopolitical tensions, an EY India report said.

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“India’s FY24 Union Budget would be the first budget after full recovery from Covid-19. With no base effects, India is likely to experience a normal real GDP (gross domestic product) growth between 6.5% to 7% in FY24,” the consultancy firm said in its December edition of EY Economy Watch on Tuesday.

The country’s economic growth is at near post-Covid normalisation, EY India chief policy advisor DK Srivastava said. “NSO’s (National Statistical Office) 2QFY23 GDP data signal that all output sectors have now normalized on a quarterly basis after the Covid-19 shock. Comparing real GDP level of INR75 lakh crore in 1HFY23 with the corresponding level of INR70.9 lakh crore in the pre-Covid-19 year of FY20, a growth of 5.7% is shown. Annual growth of 7% appears to be on course since the 1HFY23 growth amounts to 9.7% over the corresponding period of FY22, requiring a growth of 4.6% in 2HFY23,” he said.

“With RBI’s expectation of an average growth of 4.3% in the last two quarters of FY23, achieving a 6% plus growth in FY24 would call for strong policy support,” he added.

Citing the Global Economic Outlook of the Organisation for Economic Co-operation and Development (OECD) released in November, Srivastava said the ongoing geopolitical conflict is one of the major headwinds. The OECD has projected global growth at 3.1% in 2022, which is nearly half the pace witnessed in 2021. It is expected to fall further to 2.2% in 2023.

“Majority of the projected slowdown is accounted for by moderating growth rates in the OECD economies that as a group are projected to grow by 2.8% in 2022 and only by 0.8% in 2023. Amid these darkening economic clouds, India is shining as a bright spot, with its growth projected to be higher than that of other major economies,” he said. The OECD projected India’s growth to average 6.4% in the three-year period from FY23 to FY25.

The government’s fiscal position is good mainly because of “healthy” 18% growth in its gross tax revenue (GTR) in the first seven months of 2022-23, Srivastava said. “This implies that the magnitude of GTR may exceed its budgeted level by a margin of nearly ₹3.6 lakh crore. This gives ample fiscal space to the government for expanding capital expenditure,” he said.

According to the EY report, the government will meet its fiscal deficit target for the current financial year despite its first batch of supplementary demands worth ₹3.26 lakh crore net additional cash outgo. “Notwithstanding these supplementary demands, the GoI (Government of India) is in a position to achieve its budgeted fiscal deficit target of 6.4% of GDP, if not improve upon it,” Srivastava said.

“The high level of FY23 GTR would provide a much higher base of revenues for the FY24 Budget, enabling the GoI to spell out a credible glide path of fiscal consolidation while continuing to maintain an emphasis on infrastructure expansion and supporting growth,” he added. In Budget 2022-23, the government said it would pursue a “broad path of fiscal consolidation” to attain a level of fiscal deficit lower than 4.5% of GDP by 2025-26. In a separate report related to Budget expectations released on Tuesday, EY India estimated government’s fiscal deficit to GDP ratio could be reduce to 5.6% in 2023-24.

The government’s prudent policies during the pandemic helped India to emerge as a strong economic power, Subhrakant Panda, the new president of Federation of Indian Chambers of Commerce and Industry (Ficci) said. The government must continue its policy of self-reliance through incentives such as globally competitive corporate tax regime, expansion of the production-linked incentive (PLI) scheme, and further reducing compliance burdens on businesses, he said.

Citing the example of government’s calibrated approach during the tough pandemic period, he said, “FM (finance minister Nirmala Sitharaman) has a laser sharp vision on navigating India” through such situations, and, “I’m, you know, a great believer in the India story.”