Union Budget 2023: FM Nirmala Sitharaman gives early clues on what to expect

The government kicked off its annual Budget-making exercise for the financial year 2023-24 on October 10 and would look for ways of reviving growth amid a gloomy global outlook. The meeting starts with consultations with various ministries and departments on the revised estimates (RE) of expenditure for the ongoing fiscal year and the fund requirement for 2023-24. The month-long deliberations would end on November 10.

In February 2022, Sitharaman proposed a glide path — the path taken by the finance ministry and the government to fulfil defined fiscal targets — to bring down fiscal deficit to 4.5 percent of gross domestic product (GDP) by FY26 and said that for Budget 2022-23, the fiscal deficit was estimated to be 6.4 percent of the GDP. The Revised Fiscal Deficit was revised to at 6.9 percent against 6.8 percent projected in the Budget Estimates.

"We have not strayed away from the fiscal glide path. We remain committed to the fiscal glide path given in the Budget," Sitharaman said in Washington, DC.

According to estimates based on a CNBC-TV poll, food inflation for September is likely to be at 8 percent. Core inflation is expected to rise to 6.1 percent, from 5.9 percent in August. To tame inflation, the Reserve Bank of India's Monetary Policy Committee (MPC) hiked the repo rate by 50 basis points in its policy statement on September 30. With the latest increase, the rate currently stands at 5.9 percent, owing to four revisions since May 2022.

"We are amid a third major storm from aggressive monetary policy actions, and even more aggressive communication," RBI governor Shaktikanta Das said while hinting at more rate hikes in December.

All of these factors, coupled with looming global recession fears and high energy prices, can lead to a higher unemployment rate. The joblessness rate fell to the lowest in more than four years in September to 6.43 percent just before the festival season when many find jobs. This was after a record surge of 8.3 percent in the unemployment rate in August.

But the finance minister isn’t worried about jobs. "Employees' Provident Fund Organisation (EPFO) enrolments have doubled in the last quarter, indicating that employment has doubled," the FM said, adding that the data collected so far relied only on surveys and approximations.

"I want to recognise that there is a lot of reshaping, recasting that’s happening in the Indian economy. Good churn happening in the Indian economy, nature of employment is being speedily ramped up," she added.

The Narendra Modi-led government has emphasised the formalisation of jobs. So time and again, the EPFO data is cited by ministers and officials to show an increase in formal jobs.

However, a large number of Indians work on farms or have 'informal' jobs. The trend there has been different from the data visible at the EPFO. In the last Budget, when questioned about the bulk of India’s employment outside the formal sector, the government relied on building infrastructure as a primary source of job creation.

That emphasis may continue. "For the economy to revive, we need asset creation. This has a multiplier impact," the FM said in Washington, adding, "We have understood the virtue of spending on asset creation, including via borrowing."

The government announced the Gati Shakti initiative in the Budget 2022-23. The Budget also proposed a Unified Logistics Interface Platform for data exchange among various operators through APIs to achieve regulatory and operational streamlining. The National Logistics Policy was recently unveiled by Prime Minister Narendra Modi. Apart from this, investments in the infrastructure sector were also announced.

This focus on and growth of infrastructure will cost a lot of money, and the finance minister promised to spend within the means. Apart from taxation and borrowing, the other source of funds has been disinvestment or the sale of government shares in public companies.

"No sector is reserved for the public sector anymore — this was my budget announcement," FM said. "Only in four areas the public sector will maintain a minimum presence. For example, in the telecom sector, only one public sector unit may remain. Others will be amalgamated or privatised," she said.

The government had set its divestment target for FY23 at a modest Rs 65,000 core after reducing the target by more than 55 percent to Rs 78,000 crore for FY22. For FY23, the government has already raised a little over Rs 24,500 crore.

Meanwhile, inflation has been on the rise, eating into household budgets. A major part of consumer inflation is due to rising global oil prices, of which India is a net importer. Pressures are also visible in imported fertilisers, a key component in the country's agriculture — which makes for nearly a sixth of the Indian economy and about 42 percent of the country’s employed workforce.

Sitharaman said that the availability of fertiliser was an issue. "Our soil is fairly fatigued in some parts," she said.  "Last year, we gave 10x the price for imports. Farmers need fertilisers at an affordable price, and we can’t raise the price. The govt has footed the entire fertiliser price increases," she said.

These comments from the finance minister hold clues on what to expect when she stands up for the Budget speech on February 1.