Inflation, pension, FDs, EMIs: Here’s what India’s top economists are thinking ahead of Budget 2023

Finance Minister Nirmala Sitharaman will present the fifth Union Budget on February 1, 2023. This will be the last full budget of the Modi 2.0 government ahead of the general elections next year. She will present the Budget at a time when global economic activity is experiencing a broad-based slowdown, with inflation higher than seen in several decades. This has led to a hike in interest rates and affects consumer spending. 

In a Business Today Banking & Economy Summit in Mumbai, India’s top chief economists, including Madan Sabnavis of Bank of Baroda, Saugata Bhattacharya of Axis Bank and DK Joshi of Crisil shared their views on the Indian economy, inflation, rate hikes and key other macroeconomic indicators. Here’s what they have to say.

Indian Economy

Madan Sabnavis said that the Indian economy is in a very stable state despite the ongoing doom and gloom across major economies. “We have come back to a steady growth rate of around 7 per cent after the recent Covid times and subsequent lockdown. We are looking for 6-6.5 per cent growth rate for 2023-2024,” Sabnavis said, adding it still does stand out in the global economy.

“India will take another 2-3 years before we see 7-8 per cent kind of growth,” said Sabnavis.

DK Joshi of Crisil agreed with Sabnavis and added that one of the reasons for the growth is that Covid is not causing any functional disruption. Therefore, the segments like services and contact intensive are showing strong growth. “You are also seeing some rebalancing of growth towards private consumption and investment. So that is also a positive sign,” he added.

Joshi further highlighted that there are five upgrades to one downgrade at the corporate level. “The leverage levels are extremely low, at least in the Crisil portfolio. It actually allows corporates to withstand another shock and at the same time it also allows them to leverage and invest when the opportunity arises,” he said.

Joshi also said that the banking sector is in a much better position to lubricate the economy at present than it was earlier. “You have a few boxes that are getting ticked. And I think this is going to help the economy,” the chief economist at Crisil said.

Saugata Bhattacharya of Axis Bank added that everything looks good. However, according to him, there is a big risk that will come in from the external sector because of the likely slowdown. “I believe that we are done with portfolio outflows and commodity shock in the energy, metals and food which seems to have tapered off to a very significant level. However, the global slowdown is the big issue at present,” Bhattacharya said.

Interest rates

Joshi is of the opinion that fixed deposit rates will give investors a real positive return in 2023. In general, the real rate of return adjusts profit for the effects of inflation. It is a more accurate measure of investment performance than the nominal rate of return.

While sharing his views on interest rate hikes, Bhattacharya added that RBI has more or less done with the rate tightening cycle. “You will get liquidity back into the system at some point in time,” he said.

Inflation

The wholesale price index (WPI)-based inflation rate for November declined to a 21-month low of 5.85 per cent due to a higher base and easing of pricing pressure in food, fuel and manufactured products. Sharing his view on inflation Joshi added that the entire decline is due to vegetable prices. “If you take out vegetable inflation then the figure will come at around 7.2 per cent.” Joshi added.

Sabnavis said that in the next policy, RBI may increase interest rates further.

Pension

While sharing his view on the old pension scheme (OPS), Joshi said that the scheme is an unfunded pension. It is a pressure point. “There are enough evidence globally that unfunded pension schemes lead to extreme fiscal stress at some point in time. It is good that we get out of the way and the new pension scheme is much better because at least there is funding for it. It may sound good for the people. But I think from fiscal rectitude point of view, it is an extreme stress which will show up later,” Joshi added.

On the other hand, Bhattacharya of Axis Bank added that OPS is a fiscal time bomb that is ticking throughout the world. It is already benefitting a bunch of people that are already at the top.

What to expect from Union Budget

Sharing his expectations from the Union Budget 2023, Bhattacharya said that asset monetisation and divestment need to be the fulcrum of the forthcoming budget. In addition to this, the government may also focus on the capex part.

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