Budget 2023: Strong global headwinds can threaten Indian economy; here’s what can be done

As we begin the new year with continued uncertainties in global geopolitics and the world economic outlook turning less favourable, the NSO’s projection of 7 per cent year-on-year growth this fiscal year instils confidence about domestic drivers. We are optimistic that India will chart reasonably strong growth this year and the next. But that will also require targeted policy intervention to keep economic headwinds under control.

First, it would be essential to bring down inflationary pressure, but efforts must be calibrated so that it does not adversely impact growth. The RBI has tightened the monetary policy till the end of the year. Going forward, it will have to maintain the delicate balance between growth and stability objectives such that tighter credit conditions do not adversely impact consumer demand and sentiments. So far, credit growth has remained resilient. In addition, the government will be expected to target policies that address supply management issues while boosting growth.

Second, the government must continue its efforts to create sustainable growth in demand, which will require job creation and increase income generation opportunities. India is a domestic demand-driven economy, and so far, recovery in consumer spending has come in spurts.

Third, a global slowdown has been factored into all assumptions for the outlook. But what will be important for India is to capture opportunities when the global economy recovers. Focus on sectors that make India an attractive investment destination is critical, and schemes such as PLI, Gati Shakti, National logistics Policy and NIP are to be continued by ensuring fast completion of the projects and efficient execution by streamlining and frontloading expenses.

Going forward, these efforts must be reinforced and recalibrated as India wades through uncertainties. The budget is around the corner and while we have a long wish list, here are a few key expectations addressing the issues above.

Support to select few sectors – While there will be a continued fight against inflation, India needs sector-specific targeted efforts to manage supply, and therefore, inflation. For instance, a large part of inflation is due to food prices, and efforts towards building infrastructure to optimise the food and agribusiness supply chain must be made.

Incentivise the services sector for job creation- The government’s focus has rightly been on sectors that create jobs for workers across all skills, such as infrastructure, construction, and manufacturing. That aside, the services sector has huge potential—be it in retail, trade, or IT. So, while India continues its focus on various schemes like PLI to promote manufacturing and sunrise sectors, it also should focus on the services sector where India is competitive and has a comparative advantage. An effort towards building Global In-house Centers (GICs) of the world and adopting agility in doing business could revive the services sector and create opportunities.

Prepare India to bounce back when the global economy recovers: The government will have to focus on completing the projects and boosting sectors with strong linkages and multiplier effects. While progress in several infrastructure projects has been good so far we must maintain the momentum across projects. The emphasis should be towards improving financial inclusion and technology connectivity beyond Tier-1 cities. Focus on supporting the MSME sectors could help in all-inclusive growth.

Find new sources of revenue- The government will have to support growth by boosting spending to cushion the impact of global exigencies as well as the global economic slowdown. Besides, the government will have to continue the momentum of infrastructure spending to ensure jobs and asset creation. The challenge would be to raise resources for the expenses it incurs. While tax revenues have been strong, thanks to the economic revival and inflation, the government will have to monetise assets so that it can frontload its expenses this year. While the government exceeded its asset monetization target in FY22, it is likely to miss the target for the ongoing fiscal. Going forward, it will have to focus on states with large monetization base, identify potential assets that can be monetized, and also bring in strategic partnerships with private players in order to allow private capital to flow into select sectors.

Views are personal. Rumki Majumdar is Economist at Deloitte India