What does the 2022-23 Economic Survey — it was tabled in Parliament on January 31 — tell us about the Union Budget? Here are four things that stand out.
Revenue growth in 2023-24 could slow down with a lower nominal GDP growth
The survey has projected a nominal growth rate of 11% for 2023-24. Real GDP growth, according to the survey, is expected to be in the range of 6-6.8%. The first advanced estimate of GDP, which was released by the National Statistical Office (NSO) earlier this month, put nominal GDP growth in 2022-23 at 15.4%. This means that nominal growth is expected to slow down significantly in the next fiscal. Unless there is a significant increase in tax buoyancy – the change in tax collections per unit change in GDP – growth in tax revenues in 2023-24 will likely be lower than what it was in 2022-23. To be sure, the moderation in nominal growth is more because of a decline in inflation rather than a fall in real GDP growth, which as per survey’s baseline projection is likely to be 6.5% next year.
See Chart 1: Nominal GDP growth and GTR growth
The government will likely achieve its fiscal deficit target for 2022-23 and consolidate further in FY24
Last year’s Budget estimated fiscal deficit for 2022-23 at 6.4% of GDP. While the Revised Estimate (RE) for fiscal deficit will presented in tomorrow’s budget (and even RE numbers are liable to changes) the survey does drop a hint that the government will be able to achieve its fiscal deficit target for 2022-23. This, the survey suggests, has happened because of buoyant growth in direct taxes and Goods and Services Tax (GST) and limited revenue expenditure, “which should ensure the full expending of the Capex budget within the budgeted fiscal deficit”.
See Chart 2: Fiscal deficit as share of GDP
Focus on disinvestment and asset monetisation programme will continue
One area where the budget has fallen significantly short of its targets in the recent past is disinvestment. For example, the Budget Estimate (BE) for disinvestment receipts in the 2021-22 Budget was ₹1.75 lakh crore, which was brought down to ₹78,000 crore in the RE numbers for 2021-22. BE numbers for 2022-23 put disinvestment receipts at ₹65,000 crore. While the RE numbers for 2022-23 are likely to be lower than this number, the survey suggests that the government’s disinvestment push is likely to continue. The survey, in fact, has tied disinvestment and the asset monetisation programme of the government to the capex tilt in government spending. “A capex thrust in the last two budgets of the Government of India was not an isolated initiative meant only to address the infrastructure gaps in the country. It was part of a strategic package aimed at crowding-in private investment into an economic landscape broadened by the vacation of non-strategic PSEs (disinvestment) and idling public sector assets”, the survey said.
See Chart 3: Disinvestment receipts
A big stimulus to mass demand may not be in the offing
Here the survey has said more by way of omission than commission. Chapter two of the survey, which talks about India’s medium-term growth prospects, makes an argument that India is set to leapfrog into a sustained high growth trajectory in 2023-2030 as a result of policy driven reforms during the 2014-2022 period. The growth boom, the survey argues, was delayed because of “balance sheet stress caused by the credit boom in the previous years and secondarily due to the one-off global shocks that followed”. “Once these global shocks of the pandemic and the spike in commodity prices in 2022 fade away, the Indian economy is well placed to grow faster in the coming decade”.
To be sure, it is to be expected that the Economic Survey – it is after all a government document – will paint a comforting picture of the state of the economy. However, this year’s survey has made a larger argument to suggest that the concerns of a K-shaped recovery in the economy where the rich (both firms and households) have done better and emerged as the primary driver of the growth revival, are unfounded. This also means that the government does not see any need to support the aggregate demand of the non-rich, which would entail larger spending on the revenue and not just capital account.
This has in fact been the driving philosophy of the budget in the post-pandemic period, and the survey’s line of argument suggests that it will continue to be the case. While such as approach has helped India’s macroeconomic fundamentals, keeping the fiscal deficit and debt-GDP ratio in check, its exact implications for long-term growth are still to be seen. That India does not have a Consumption Expenditure Survey after 2011-12 has only made this debate more difficult to resolve.
