Budget 2023-24: Centre to target higher capex but lower fiscal deficit

In the Budget 2023-24, the Centre is most likely to target a higher capital expenditure (capex) projection but a lower fiscal deficit on the back of healthy revenue, experts told Business Standard. This could be achieved mainly due to lower subsidies and buoyant tax collections.

"It is expected that the current fiscal deficit will be achieved at 6.4 per cent, owing to many factors including improved tax collections and a higher nominal gross domestic product (GDP) growth. With increased inflation, improved GDP and improved tax collections, a correction in the fiscal position are expected in 2023-24 (FY24) with the fiscal deficit in the sub-6 per cent, ranging from 5.7 per cent to 5.8 per cent," said Padma Priya J, partner of Public Sector Consulting at Grant Thornton Bharat.

The Centre, in Budget 2022-23, had set a fiscal deficit target of 6.4 per cent for FY23. Finance Minister Nirmala Sitharaman had announced that the Centre would aim to bring this down to 4.5 per cent by FY26. Experts said a fiscal deficit below 6 per cent in FY24 will align with the target.

According to Ranen Banerjee, leader of Economic Advisory Services at PricewaterhouseCoopers, the tax collections have been healthy due to continued formalisation and digitalisation of the economy.

"Also, the government is undertaking more data analytics leading to plugging of the leakages in the taxation ecosystem," he said.

Moreover, if it faces some headwinds on the revenue front, the Centre will be able to make up for it by using the asset monetisation plans which have already been prepared but not released yet.

"The fiscal deficit for FY24 in the range of 5.5 to 5.9 per cent would be a good walk on the fiscal consolidation path to go 4.5 per cent by FY26," Banerjee said.

While they agreed on the fiscal deficit target for FY24, experts differed on the likely disinvestment target.

According to Padma Priya, the disinvestment target for FY24 is likely to be pegged at Rs 40,000 crore. Banerjee, however, said it might be placed in the range of Rs 65,000 crore to Rs 1 trillion.

"Considering that the receipts of the ongoing year may range between Rs 45,000 and Rs 50,000 crore, the disinvestment target for 2023-24 may be somewhere around Rs 65,000 crore," said Rohit Arora, CEO and co-founder at Biz2Credit and Biz2X.

Business Standard had earlier quoted sources saying that the target may be kept at Rs 60,000 crore.

However, most experts Business Standard talked to agreed that the capex is likely to get a big boost in the upcoming Budget. Last year, the Centre fixed a capex target of Rs 7.5 trillion for FY23. In FY24, it is likely to jump by 20-30 per cent to around Rs 9 trillion.

"The FY24 Union Budget can appreciably enhance the GoI's capital expenditure to Rs. 8.5-9.0 trillion and target a lower fiscal deficit of 5.8 per cent of GDP, aided by the welcome cushion offered by lower subsidies," said Aditi Nayar, chief economist and head of Research and Outreach at ICRA.

"There is a need to increase the capex given that the private capex has not picked up and also the economic growth rate for FY24 is likely to be lower than the current year given the global headwinds. I expect capex to rise in the range of 25-30 per cent over the previous Budget," Banerjee said. He added that it must go into areas which can absorb it fast, primarily defence, railways and roads, also in rural schemes like Pradhan Mantri Gram Sadak Yojana (PMGSY).

According to Padma Priya, the higher spending should be prioritised towards increased allocations to the infrastructure sector, increasing allocations to institutions like NaBFID, providing a further push to production-linked incentive (PLI) scheme, introducing credit enhancement measures to bring in private capital investment, providing a push to asset monetisation and also towards privatisation of the PSUs.

Experts further said that sectors like infrastructure, manufacturing, health and education would propel the country's growth in FY24. Further, despite geopolitical headwinds and higher interest rates, GDP growth above 5.5 per cent would be considered "good".