DBS Bank expects the government to target a fiscal deficit of 5.8-5.9 percent of GDP in 2023/24, up from 6.4 percent in the current fiscal year ending on March 31.
According to Reuters: According to DBS Bank’s chief economist, the Indian government will aim to reduce its budget deficit ahead of the upcoming national election in 2024 without losing sight of long-term economic growth.
“We anticipate that the budget will chart a path toward some fiscal consolidation,” said Taimur Baig, a managing director at DBS.
“Demand moderation is a prudent strategy to pursue, even as infrastructure investment and strategic planning sow the seeds of long-term growth,” he added.
DBS Bank expects the government to target a fiscal deficit of 5.8-5.9 percent of GDP in 2023/24, up from 6.4 percent in the current fiscal year ending on March 31.
Nirmala Sitharaman, India’s finance minister, will present the federal budget for the next fiscal year on February 1. This will be the final full one before the general election in May 2024.
The government has stated that it intends to reduce the fiscal deficit to 4.5 percent by fiscal 2025/26.
According to a Reuters poll of economists, the government will focus on fiscal consolidation in the upcoming budget because slowing economic growth will prevent it from spending more.
According to DBS Bank’s Baig, India’s macro vulnerabilities are not insignificant, as the central government has “substantial” debt. Corporate debt-to-GDP ratios are also not low by international standards.
He also expressed concern about dollar borrowings.
According to Baig, the government will be aware of slowing growth in the United States as a result of the Federal Reserve’s multiple interest rate hikes, which could reduce demand for exports from emerging markets.
“There is no such thing as India in a cocoon.”
According to Baig, interest rates in India are expected to remain high in 2023 because domestic-driven inflation is unlikely to fall sufficiently for the central bank to consider cutting rates.
DBS Bank anticipates that the terminal repo rate will peak at 6.50%.
“The fact that real interest rates will be higher, both in rupee and dollar terms, is an additional disincentive on top of the fact that global demand will be hampered,” Baig explained.
“Despite the positive sentiment, there is a global cyclical headwind that will affect Indian investment sentiment.”
