Budget 2023: FM must ensure sustainable growth in demand and prepare for a global slowdown

By Dr. Rumki Majumdar
Despite the RBI raising rates by 1.9 ppts since April 2022, inflation has remained above its tolerance range for over nine months. The RBI will have to submit a report to the central government stating the reasons for the failure to contain prices.
The runaway dollar is causing import bills to soar and further pushing inflation up. In addition, INR depreciation against the US dollar is more due to the appreciation of the latter owing to the flight to safety amongst global investors amidst global uncertainties.The domestic currency is appreciating against euro, pound, and yen, and thereby suggests that the macroeconomic fundamentals of the Indian economy remain strong.
The other challenge is the rise in current account deficit and currency depreciation against dollar. A rebounding domestic economy has led to higher imports and moderated global demand has caused exports to slowdown. The US dollar’s unrelenting rise and global inflation are further causing India’s import bills to rise.
Expectations
We expect the GDP to maintain a reasonable growth momentum, unlike what we expected at the beginning of the year. Considering global economic uncertainties and a possible slowdown, we remain cautiously optimistic about growth that may range between 6.5 and 7.1 percent during FY2022–23 and 5.5–6.1 percent the following year. Economic activity will likely pick up early next year, contingent on the pace of global economic revival and the improving domestic economic fundamentals.
Top three asks:
Keep the overall Consumer Price Index (CPI) inflation within the range of the RBI’s target inflation rate for the remaining year. The government and the RBI need to make a coordinated effort to control inflation. The RBI has already tightened the monetary policy but will have to calibrate policy rate rises to check inflation without impeding growth. In addition, the government will have to adjust trade duties such that its own revenues are not affected much.
Lay emphasis on sustainable growth in demand, which will require efforts to create jobs and increase income generation opportunities. India is a domestic demand-driven economy, and so far, recovery in consumer spending has not been sustainable. The suggested move will put more money in consumers’ wallets.
Prepare for a global slowdown and focus on sectors that can make India an attractive investment destination. The Production Linked Incentive (PLI) scheme and infrastructure plan are a success and with the national logistics policy, there will be a substantial reduction in production cost. The government must focus on fast completion of projects and efficient execution of initiatives. The other expectation would be raising capital for investments through asset monetisation.
The author is an economist with Deloitte India