Executive Summary

Spending to grow

The budget has bet big on an investment push to lift economic growth, two years and three waves into the pandemic.

The lift in the consumption cycle is now tied to a broad-based pick-up in economic activity - which the government is trying to engineer through a focus on investments.

Pursuing this path would enhance the growth potential and, it is hoped, will bring endurance to growth in the medium term, though refraining from giving a direct consumption support could curb the pace of economic recovery in the short term.

For the next fiscal, the government's revenue expenditure is budgeted to grow less than 1% after growing 2.7% in this fiscal. The total capex of the central government though (budgetary capex plus revenue grants for capital creation and capex by central public sector enterprises) is budgeted to rise 14.5% compared with only 3.1% in this fiscal.

So the budget essentially makes way for capex by tightening the belt around revenue expenditure. In general, the government has refrained from giving any direct consumption support in this budget. Yet, frontloading infrastructure spending could bring about faster growth.

The risks to India's near-term economic outlook are still tilted to the downside. Global growth looks uncertain and that will have a bearing on India's exports, one of the key demand drivers of domestic growth during the pandemic. International commodity prices, especially of crude, remains stubbornly high. And critical raw materials, such as chips, remain in short supply.

CRISIL projects fiscal 2023 real GDP growth at 7.8%, compared with the advance estimate of 9.2% for this fiscal.

Among the sectors, infrastructure continues to be a bright spot, with a 30% hike in budgetary support. Railways, water, and green energy have got particularly strong impetus. Railways, for one, benefits from a 14% rise in capex compared with fiscal 2022RE.

Notably, the government's direct spend (gross budgetary support) is budgeted at 62% of aggregate capex next fiscal, up from 55% in the current one. This reflects a shift in the financing pattern - an increase in reliance on direct budgetary support and a reduction in funding from central public sector enterprises - as visible in the IEBR component in roads being eliminated completely, reducing dependence on borrowings by the National Highways Authority of India.

The power sector also benefits from the thrust to green energy and the increase in outlay to Rs 24,000 crore from Rs 19,500 crore. Also, the basic customs duty of 40% and 25% on imported solar photovoltaic (PV) modules and cells will spur domestic manufacturing.

The signal for agriculture, however, is mixed. The reduction in food subsidy by a quarter for next fiscal implies a decline in government procurement for crops at minimum support price, which could impact farmer income and thereby sales of two-wheelers and tractors.

Electric vehicles, though, have impetus from moves to standardise battery swapping infrastructure, which will boost their adoption and commercial use.