Budget 2023 to see rise in poll-oriented spending; rural, infra capex boost likely: UBS

Union Budget 2023: The last full Budget of the Narendra Modi-led NDA government will likely boost welfare spending with a focus on rural and infra capex. The budget could pin the fiscal gap at 5.8 per cent next fiscal due to a reduction in subsidies despite a likely fall of 10.5 per cent in nominal GDP growth, according to the Swiss brokerage UBS. 

The Budget is likely to boost rural/agri spending by $10 billion, 15 per cent higher than FY23, and maintain 20 per cent growth in public capex over the current fiscal, as per UBS India economist Tanvee Gupta Jain. She further said that the government may not go beyond fiscal boundaries with its election-oriented budget and also believes the subsidy burden will likely ease in FY24. 

This, according to her, will create more fiscal space to reallocate money towards existing schemes like MGNREGA, rural housing, and roads to name a few. Jain further noted the economy to moderate further and pencils a GDP growth of only 5.5 per cent for next fiscal, lower than 6 per cent, saying global growth and delayed impact of monetary tightening coupled with the spillover of an expected global slowdown in this year, news agency PTI reported. 

She added India’s structural growth story remained intact and expected the domestic economy to maintain potential growth of 5.75 per cent to 6.25 per cent in the medium term. Jain said that she expects the consumer price inflation to moderate towards 5 to 5.5 per cent in FY24 from 6.6 per cent in FY23 but to remain above RBI’s 4 per cent target due to uncertainty. 

Besides this, the government is also aiming to slash food and fertiliser subsidies in 2023-24 to $44.6 billion in the fiscal year from April, down 26 per cent on-year to rein in a fiscal deficit triggered by the COVID-19 pandemic. 

Food and fertiliser subsidies alone account for one-eighth of India’s total budget spending this fiscal, year but the reduction in food subsidies might impact the ruling party’s political fortunes in the upcoming elections. The Centre expects the spending on food subsidies to go down to around Rs 2,30,000 crore in the upcoming fiscal from Rs 2,70,000 crore in the current fiscal. 

Spending on fertiliser subsidies is likely to fall to Rs 1,40,000 crore compared to nearly Rs 2,30,000 crore in the current fiscal, as per news agency Reuters. 

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