Policy Planning: Finance Minister Nirmala Sitharaman is set to present her sixth Budget in February 2023, marked as a vote-on-account due to the upcoming general elections in 2024. This interim Budget is crucial in setting the stage for sustained growth and resilience in the next fiscal year, shaped by the current economic landscape.
Evolution of Inflation and GDP Numbers
Inflation Challenges
Policy Planning, At the start of FY23, the Reserve Bank of India faced the task of curbing high inflation levels, reaching 6.52% in January 2023. Food prices played a significant role, accounting for almost 40% of the Consumer Price Index.
Resilient GDP Growth
Policy Planning, Despite global uncertainties, India’s GDP exhibited resilience with incremental progress in recent quarters. Q4 of FY23 saw a stronger-than-expected growth of 7.2%, surpassing earlier estimates and showcasing the country’s economic resilience.
FY24 Economic Surprises
Policy Planning, FY24’s Q2 numbers surprised economists, standing at 7.6%, exceeding expectations. Inflation moderated in H2, staying within the RBI’s comfort zone, but challenges loom with food prices and global crises potentially impacting economic stability.
Policy Considerations for Budget ’24
Inflation’s Crucial Role
Policy Planning, The prevailing inflation rate, as reflected in the Consumer Price Index (CPI), remains a central consideration for policymakers. High food prices, coupled with rising oil prices, pose challenges despite the RBI’s efforts to address inflation.
Global Uncertainties and Economic Impact
Global uncertainties, such as the Israel-Palestine conflict, add complexity to economic deliberations. Concerns arise about potential disruptions to global supply chains and the economy, affecting India’s trade deficit and current account.
Disparities in Consumer Spending
Policy Planning, While high-income segments show a strong revival in consumer spending, rural demand faces challenges. Segments like FMCG, entry-level autos, and two-wheelers are yet to see sustained growth. Rising policy rates and erratic monsoons further stress rural spending abilities.
Impact of Existing Policies on Budget ’24
Existing policies, spanning taxation, investment incentives, and welfare programs, form a critical backdrop for Budget ’24. The principle of continuity and strategic realignment is expected to guide budgetary decisions, ensuring a seamless transition while addressing evolving economic demands.
In conclusion, the confluence of inflation, GDP growth, and existing policies sets the stage for Finance Minister Nirmala Sitharaman’s interim Budget for FY25, emphasizing the need for astute fiscal strategies in navigating the economic landscape.