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Budget 2023: Why FM Sitharaman should look to maintain reasonably high but stable GDP growth

Budget 2023-24 should look to maintain a reasonably high but stable growth in the next financial year and in the medium term, says EY in its December Economy Watch edition. “The forthcoming Union Budget may aim at laying down a solid foundation for a stable medium-term growth accompanied by a credible redefined fiscal consolidation glide path,” EY advocates.
According to EY, a combination of relatively low global crude prices and high tax buoyancy may enable India to achieve a reduction in fiscal deficit. This can be done while maintaining reasonably high levels of government capital expenditures, thereby driving growth, it says.
EY points out that Union Budget 2023 will be the first “normal budget” after the COVID-19 induced shock. It will also be presented by FM Nirmala Sitharaman amid global geopolitical developments.
“While the adverse impact of COVID-19 has almost subsided, both growth and inflation numbers may be affected by the post-COVID-19 global upheavals, including the Russia-Ukraine conflict which has been accompanied by a global slowdown and significant supply side bottlenecks,” it notes.
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The report states that India Budget 2023 should re-prioritise expenditures over the medium term to ensure that the use of borrowing for revenue expenditures is minimized with a view to eliminating it in the medium term. “This will imply that the entire fiscal deficit, which is liability creating, will be used for capital expenditures, which will create corresponding assets,” EY says.
Alongside, to establish fiscal credibility, suitable incremental reduction in the fiscal deficit to GDP ratio is required, taking the central government toward the FRBM target. “Meanwhile, the case for recasting the fiscal deficit target to 4% of GDP should also be examined by an Expert Committee (High-Powered Intergovernmental Group) as recommended by the 15th FC,” EY adds.
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EY is of the view that with no base effects, India is likely to experience a normal real GDP growth between 6.5% to 7% in FY24, says EY. Amid darkening economic globally, India is shining as a bright spot, with its growth projected to be higher than that of other major economies, it adds.



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