In contrast to the 6.4% objective set for the current fiscal year that ends on March 31, DBS Bank anticipates that the government would aim for a fiscal deficit of 5.8 to 5.9 percent of gross domestic product (GDP) in 2023–24.
According to the chief economist of DBS Bank, the Indian government would aim to cut its budget deficit before the upcoming national election in 2024 without losing focus on long-term economic growth.
Taimur Baig, who is also a managing director at DBS, stated, “We expect the budget to chart a road towards modest fiscal restructuring.”
Even while the seeds for long-term prosperity are laid through infrastructure investment and strategic planning, he continued, “Demand moderation is a sensible policy to follow.”
In contrast to the 6.4% objective set for the current fiscal year that ends on March 31, DBS Bank anticipates that the government would aim for a fiscal deficit of 5.8 to 5.9 percent of gross domestic product (GDP) in 2023–24.
The federal budget for the upcoming fiscal year will be presented on February 1 by Indian Finance Minister Nirmala Sitharaman. Prior to the general election in May 2024, this is the last one in its entirety.
The government has stated that it wants to reduce its fiscal deficit to 4.5% by the fiscal year 2025–2026.
In the upcoming budget, the government is expected to concentrate on fiscal consolidation as slower economic growth would prevent it from increasing spending, according to a Reuters poll of experts.
Large-scale weaknesses
Given the “considerable” debt held by the central government, according to DBS Bank’s Baig, India’s macro vulnerabilities are not insignificant. In comparison to worldwide standards, corporate debt-to-GDP ratios are also high.
Concerns about dollar borrowings are also present, he continued.
Following many interest rate increases by the Federal Reserve, the government will probably be aware of the slowing growth in the US, which could reduce the demand for exports from emerging nations, according to Baig.
India is not a cocoon-like existence.
According to Baig, interest rates in India will likely remain high in 2023 as the country’s inflation is unlikely to decline significantly enough for the central bank to consider lowering rates.
The terminal repo rate is anticipated to peak at 6.50% by DBS Bank.
In addition to the fact that there would be less worldwide demand, real interest rates will be higher both in terms of rupees and dollars, according to Baig.
Although the mood is upbeat, a global cyclical headwind will also have an impact on Indian investors’ mood.
