Budget 2023 Review - Populism Gives In To Investment-Led Spending Growth Strategy: Motilal Oswal

Motilal Oswal Report

The Union Budget 2023 was presented on Feb, 01 2023 amid high expectations. Since this was the last full budget before 2024 General Elections, it was expected that the government could announce some income support for the rural sector or implement some measures to boost consumption growth in the economy.

However, the government did not give in to these expectations and continued with its investment-led spending growth strategy along with modest fiscal consolidation. Although the Economic Survey projected a nominal gross domestic product growth of 11% YoY in FY24, the Budget assumed 10.5% nominal GDP growth next year.

Contrary to our expectation of lower-than-budgeted deficit in FY23, the Government of India kept it unchanged at 6.4% of GDP in FY23. This means that fiscal deficit was revised up to Rs 17.6 trillion in FY23, from budget estimate of Rs 16.6 trillion.

At the same time, the GoI has budgeted the deficit at 5.9% of GDP (Rs 17.9 trillion) for next year, which is in line with the market consensus but higher than our expectations of 5.7%.

Total liabilities of GoI are likely to rise to 56.2% of GDP in FY24BE from 55.9% of GDP in FY23RE owing to weaker growth and modest consolidation.

Moreover, although the bonds market cheered the lower-than-expected gross market borrowings (albeit net borrowings were in line with the market consensus), the GoI has assumed another Rs 4.7 trillion worth of financing from small savings. The latter seems highly ambitious to us, and any shortfall in FY24E could mean either lower spending growth and/or higher market borrowings.

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