India to reach budget deficit target for next year
2023.02.06 07:21
India to reach budget deficit target for next year
By Ray Johnson
Budrigannews.com – The Indian government will meet its deficit target for the upcoming fiscal year. Economists were divided on whether New Delhi would carry out all of its planned capital expenditures, the most ever.
Prime Minister Narendra Modi’s administration has largely adhered to its borrowing targets since taking office in 2014. However, it has been harshly criticized for not creating enough jobs, particularly for young people.
34 of the 39 economists who responded said that the government could reach the target of a fiscal deficit of 5.9% of GDP set by Finance Minister Nirmala Sitaraman for the fiscal year 2023/24. That would be lower than the anticipated 6.4% for the fiscal year that began on March 31.
The remaining five economists who predicted that the government would not achieve that goal predicted a fiscal deficit of between 6.0 percent and 6.2 percent.
The government’s primary goal is to reduce the deficit to 4.5 percent of GDP by 2025/26. On whether it would be successful, respondents were evenly divided.
A record capital expenditure of 10 trillion Indian rupees ($120 billion) was also announced by the government on February 1, exceeding the 8.85 trillion expected in a Reuters poll prior to the budget.
However, only half of the 38 people polled between February 1 and 3 predicted that the government would meet that spending target. Some argued that the economy would slow as a series of interest rate hikes in 2022 take hold and limit the government’s spending power among those who claimed it would not.
“Are the numbers from the budget too optimistic? We believe that yes is the margin. Nomura’s chief economist for India and Asia ex-Japan, Sonal Varma, stated, “We expect growth to significantly slow in FY 2023/24…(which) means tax revenues are likely to disappoint.”
“The government will have to cut back on its projected capex target, but it can still meet its 5.9% deficit target.”
In response to a follow-up question, six economists predicted that capital expenditures would fall short of budget estimates by a median of 1.25 trillion rupees.
New Delhi has nearly doubled its capital expenditures in the last three years. However, it appears likely that it will fall short of the 7.5 trillion rupee target for this fiscal year, as it has missed its budget capex target four times in the past nine years.
Although public capital spending has increased, there has been little evidence that the private sector has followed suit. This is supposed to have increased employment.
26 out of 37 respondents responded that the measures announced in the budget would have a significant impact on job creation in the upcoming fiscal year; however, much would depend on how they were implemented.
The remaining eleven stated that employment was not significantly impacted by the government.
India economist at Societe Generale, Kunal Kundu (OTC:), said, “It is unlikely that jobs will be created to the required scale.”
Kundu stated:
“The stress in the labor market is very clear, because we still have a pretty elevated unemployment rate, despite a much lower labor force participation rate.”
The Centre for Monitoring the Indian Economy, a think tank, reported that the unemployment rate was 7.14 percent in January.
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