Budget 2023: Focus On Infra Development Can Create Jobs, Generate Demand And Sustain Growth
Fiscal consolidation and public investment in infrastructure projects are likely to be on the government's radar for growth recovery of the economy amid global uncertainties and looming recession threat
The Union Budget of the Modi government 2.0 for the financial year 2023-24 will be rolled out by Finance Minister Nirmala Sitharaman on February 1. As per media reports, the finance minister is likely to announce a slew of people-centric announcements as it is the last full Budget of the present government before the country goes to the general elections in 2024. Thus the focus will be on job creation and generating employment opportunities.
Fiscal consolidation and public investment in infrastructure projects are likely to be on the government's radar for growth recovery of the economy amid global uncertainties and looming threat of recession. The government may increase capital outlay for defence procurement as the country needs more make-in-India projects in the defence sector.
The first advance estimate (FAE) of GDP released by the Ministry of Statistics and Programme Implementation (MoSPI) states that the country is expected to grow by 7 per cent in FY23. The growth is 170 bps lower than its corresponding FY22 level. It is mainly because of the base effect that had pushed up the growth for 2022.
Apart from this, the gross value added (GVA) in all sectors growth has entered into the northward zone and is inching above its pre-Covid pandemic period FY20 level. The growth in the GVA during 2022-23 is estimated at 6.7 per cent as compared to 8.1 per cent in 2021-22.
Though the GDP growth rate in FY24 is expected to be lower than its FY23 level due to the ongoing global economic slowdown, the IMF has projected a growth rate of 6.1 per cent while the OECD has estimated it at 5.7 per cent for the next fiscal year.
Despite expected slower growth, India will lead the world economy as the global economy is witnessing a deterioration in the post-covid regime. While the OECD expects a slump in the growth of the global economy from 3.1 per cent in 2022 to 2.2 per cent in 2023, the World Bank projects that the world economy will decline from 2.9 per cent in 2022 to 1.7 per cent in 2023.
Though the FAE data depicts recovery of all output sectors of India, the growth in the Trade, Hotel, Transport, Communication, and Broadcasting Services sector, against the FY20 levels, is a cause for concern. The growth of this sector is only 0.8 per cent above its FY20 level. This sector contains relatively a higher number of informal business units and generates maximum employment. Subsequently the manufacturing sector witnessed a weak growth of 1.6 per cent against 9.9 per cent in the previous year due to weak external as well as domestic demand.
The private consumption or domestic demand that is represented by the private final consumption expenditure (PFCE) has shown a gradual improvement, grown on average 7.4 per cent in post covid period and reached Rs 90.22 lakh crore in FY23. But the ratio of PFCE with reference to GDP (PFCF/GDP) in FY23 is not in a good position. PFCF to GDP was 57.1 per cent in pre-covid time of FY20; it was increased to 57.3 per cent in the covid affected financial year of FY21. Further it has declined in FY22 by 40 bps to 56.9 per cent and is now estimated to increase in FY23 by 10 bps from pre-Covid levels and 30 bps compared to the previous year, reaching 57.2 per cent.
Capex in FY22 and FY23
The FAE of the GDP will serve essential inputs for the Budget of 2023. Data reveals that the budget for 2023-24 would aim for a trade-off between bringing down fiscal deficit and capital expenditure to support the growth recovery. The capital expenditure data of the previous year’s Budget and current fiscal is a reflection of the firm commitment of the government to spurring economic growth by investing in infrastructure development.
The actual capital expenditure especially on infrastructure in FY22 against the annual Budget Estimate was increased by 8.67 per cent - from Rs 5.54 lakh crore to Rs 6.02 lakh crore. In FY23, the capital expenditure has increased by Rs 1.96 lakh crore or about 35.4 per cent over the annual Budget Estimate of 2021-22. In the Budget of 2022, the government had fixed four priorities – PM-GatiShkti; inclusive development; financing investment; and productivity enhancement and investment, sunrise opportunities, energy transition and climate action.
PM-GatiShkti is a transformative outlook for economic growth and sustainable development driven by seven engines – roads, railways, airports, ports, mass transport, waterways, and logistic infrastructure. These engines are being supported by corresponding roles of energy transmission, Information technology communication, bulk water and sewerage and social infrastructure. The approach is pushed by clean energy and sabka prayas that are the collective efforts of the central government, the state governments and the private sector, leading to huge job and entrepreneurial opportunities.
Focus On Forthcoming Budget
The next Budget is likely to continue in the same way to provide impetus for growth through investment in infrastructure in the next fiscal as well. Budget 2023 may witness the country stepping up on capital expenditure with a main push on PM-GatiShkti and national infrastructure pipeline (NIP) targets. Stakeholders in the urban infrastructure sector are also eying the infrastructure allocation and policy initiatives in the upcoming Union Budget of 2023.
The finance minister has already indicated that the government will prioritise urban infrastructure such as metro projects. A report of the world bank estimates India will need to invest $840 billion over the next 15 years into urban infrastructure to meet the needs of its urban population. Therefore, boosting the infrastructure will likely be a major focus of the Budget in 2023.
The rating agency ICRA is also on the same vein and expects the government’s focus to be on urban infrastructure with increased allocation of funds towards urban transportation, water supply, sanitation and sewage management in Budget 2023. The Budget could have some major focus areas on infrastructure this year too as it provides a thrust towards economic growth; employment opportunities; and reduces the cost-of-doing trade.
There could be a double-digit growth in capital expenditure in the upcoming Budget. Based on Rs 7.5 lakh crore allocation in the current Budget, it is expected that the capital expenditure target could be Rs 9.0-10.5 lakh crore in FY24 in order to provide a fillip to infrastructure development and capacity expansion to create demand, generate employment and support the growth recovery.
Dr Vinay K Srivastava teaches at ITS Ghaziabad
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