Union Budget 2023: Fiscal target of less than 6% can really boost growth, ease fiscal pressure

The Union Budget is scheduled to be presented on the 1st of Feb’23. This is going to be the last full year Budget before the early 2024 general elections. Looking at the equity markets, Indian equity, along with the globe, witnessed varied levels of volatility. The key domestic key indices, nifty maintained positive returns for the year, with YTD returns for the year 2022 at 2.8 per cent, global indices witnessed a sharp fall with Dow Jones Industrial average at -9.1 per cent, NASDAQ at -34.6 per cent, DAX at -12.6 per cent and Nikkei at -10.3 per cent. The volatility for the year persisted due to higher than anticipated inflationary trend witnessed globally, the Russia Ukraine standoff, macro-economic issues as well as geo-political concerns.

The last budget focused on digitisation, ease of doing business, infrastructure and was investment led. For 2022-23, the Centre had set a record capex target of Rs 7.5 lakh crore, up 35 per cent from the Budget estimates for the previous year and is very much on track to meet this figure. With the latest data showing that it had spent Rs 4.09 lakh crore, which is ~55 per cent of the target in the first seven months of the financial year. The expectation from the budget is focus on growth, maintaining of the fiscal deficit target and keeping inflation in check. Public investments to remain one of the key growth triggers for the next year and fiscal consolidation going hand in hand. There are expectations of the fiscal deficit target of 6.4 per cent of GDP to not only be met but the next year target to be lowered owing to the ample GST collection.

Also Read: Union Budget 2023: The Finance Ministry should simplify and rationalise personal tax laws

Market expectations are of a fiscal target of less than 6 per cent, this will help in accelerating growth and aid the central government in some fiscal pressure. What the markets don’t want are unpleasant surprises on the tax front, especially as there are a host of other things for investors to worry about. Considering the current scenario, one thing that the markets are expecting is no negative news on taxation part. Along with manufacturing sector, I believe that there can be positive policies and support to the service sector which can help further boost the economy. Expectations of PLI scheme in private sector to improve employment can be considered and more allocation in defence sector and capital-intensive sectors. Focus on rural economy and policies around the same can also be expected along with subsidies. India's global ranking in terms of size of the economy has improved from 16th to 5th. Since 2000, the share of equity investment by Indian households in overall savings is increasing continuously.

Over the last 5 years, major part of the investment in equities is coming through systematic investment plan in the units of mutual funds. Therefore, the domestic money flow towards the equity market is the major strength of India. India also attracts 2 to 3 per cent of the overall global cross border portfolio equity flows. Since the year 2000, India experienced net cross border portfolio equity investment outflow only in 3 years, 2008, 2011 and in 2018. The current year is also likely to be and outflow year. Yet, going by the past experiences, whenever there has been an outflow of portfolio investment from India, in the next couple of years India receives large amount of portfolio equity inflows, from that perspective also India looks attractive. The Budget next year will come at a time of geopolitical uncertainties, concerns around slowing growth, inflation sticking to high levels despite the measures taken by the central banks and governments. Considering the global economic uncertainties and a possible global slowdown, the finance minister will have to keep this economic setup in mind.

Views are personal. The author is Co-founder & Vice Chairman, Anand Rathi Group.