Budget 2023 and its macroeconomic projections

Background:

Finance Minister Nirmala Sitharaman indicated in her budget speech that, in spite of the massive global slowdown caused by the pandemic, followed by the geopolitical disruption, India would remain as the fastest growing economy amongst the major economies of the world. In this context, it is important to discuss the extent to which the budget will support growth. As policy measures and fiscal estimates determine the thrust areas of the economy to a large extent, it is important that we understand their implications and nuances.

Key takeaways

• Assuming an inflation component of 5%, the implied real GDP growth in the budget is 5.2%. This is lower than the 6.5% indicated by the Economic Survey.
• The relative role of private investment expenditure is much larger than that of government capital expenditure.
• Increase in demand due to investment stimulus and higher consumption expenditure would create a crowding in effect.
• Subsidies are also sensitive to assumptions made regarding the movement and extent of reduction in global crude prices. 

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