What Economic Survey tells you about Union Budget 2023

Tuesday's Economic Survey painted quite an optimistic view of the economy. The survey, economists said, suggested India's growth trajectory will be supported by multiple structural reforms and better economic health of corporate and bank balance sheets, helped by healthy public sector capex. The hope, said Madhavi Arora, Lead Economist, Emkay Global Financial Services, was that all of it should help in starting a new private sector capital formation cycle, signs of which are visible, she said.

Nomura economists Aurodeep Nandi and Sonal Varma said the survey’s strong focus on public capex suggests that the government could announce a large capex outlay, possibly over 3 per cent of GDP for FY24 against 2.7 per cent of GDP expected in FY23. The emphasis on fiscal consolidation also hints at a smaller fiscal deficit target, it said.

The message that the growth thrust would be driven by higher capital expenditure, private consumption, credit growth to small businesses, strengthening corporate balance sheets and the return of migrant workers to cities provide cues about what one could expect in the Budget, said Ranen Banerjee, Partner and Leader  - Economic Advisory Services at PwC India.

The cues suggest: "A big dose of capex allocation; some income tax relief to provide more money for consumption at the lower end of the income brackets; continuation of the Credit Guarantee Scheme for MSMEs; PLIs for new sectors to enthuse private capex; and possible plateauing of the allocation to MGNREG," Banerjee said.

Nomura India economists said the over-optimism on growth may, however, limit the extent of potential expenditure consolidation and overstate revenue projections in the FY24 Budget.

Nomura India said the Economic Survey focused at length on the government’s capex prioritisation, stating that it sees the capex multiplier at around 4 (incremental Re 1 of capex leads to Rs 4 increase in output), and believes the rise in public capex is a contributing factor to the expected recovery in private capex. The survey also suggested that a ‘capex-led growth strategy’ will ensure that India’s debt burden remains sustainable, by keeping the growth-interest rate differential positive, Nomura noted.

" The survey talks of “fiscal discipline turning into fiscal stimulus” through lowering the cost of government borrowing, and the high interest rate burden. It goes on to argue that for EMs, the gains from fiscal consolidation through a lower risk premium are greater than for DMs," Nomura noted.

Nomura noted that the survey advised the government to continue incentivising states towards reforms and higher public capex.

"It has flagged asset monetisation as the biggest fiscal stimulus to the economy by reducing public sector debt and improving the sovereign credit rating. It has also argued that there is a need for reforms on ease of doing business, raising capital for MSMEs, skill enhancement, and a focus on social sector outcomes," Nomura said.

Also read: Sensex, Nifty rally ahead of Union Budget, Fed outcome; Adani stocks mixed

Also read: Adani Power shares hit lower circuit, dive 23% in five sessions