If 20% of total expenditure is capex, it will be a big boost for a lot of sectors: Madhu Kela
Synopsis
“The government has Rs 1.5 lakh crore of surplus from subsidy. The RBI has the legroom to give at least Rs 80,000 crore to Rs 1 lakh crore more by way of dividend to the government. If I take both of this into account, there will roughly be Rs 2.25 lakh to Rs 2.5 lakh crore of extra ammunition right in this Budget which was not there last year.”
I have been tracking Budget numbers very closely for the last maybe 15-20 years now and I must say that these numbers look one of the best. In the past, optically the numbers may have looked very good but behind that, we had some kind of oil bonds which were off Budget items, in FCI which was off budget.
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There was an unfortunate event of the fertiliser prices and gas prices going up in the world and that has dented our fiscal numbers as otherwise it would have been much better than what they are looking at now.
My point is that the 6.5% fiscal deficit number was assumed by the government at the beginning of the year. In my expectation, they will surpass that and it will be better than 6.5%. Also it got aided by the rise in the nominal GDP which was projected to be roughly Rs 258 lakh crore. It will come to more like Rs 273 lakh crore or Rs 275 lakh crore by the time we end the year. Even more important, when we go into the next year, our situation is very comfortable.
Why is it comfortable?
The subsidy number is unlikely to get repeated and the government is likely to save at least Rs 1.5 lakh crore on account of lower subsidy only. Assume everything will be the same and there will be some revenue growth on a nominal basis and expenditure growth on a nominal basis. They have this Rs 1.5 lakh crore of surplus from subsidy itself. RBI this year is likely to give only around Rs 30,000 crore to the government. Now we have analysed the balance sheet of the RBI.
In my view, RBI has a legroom and how much they will give, I do not know but they have a legroom to give at least Rs 80,000 crore to Rs 1 lakh crore, more only by way of dividend to the government. If I take both of this into account, there will roughly be Rs 2.25 lakh to Rs 2.5 lakh crore of extra ammunition right in this Budget which was not there last year.
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I expect the current year number to be very good as the government fiscal situation is really good. Now, we have to take this in the backdrop where we are talking of recession and we are talking of developed economies. The developed economies’ fiscal deficit is higher than India’s.
This time around food subsidies are not there and RBI cushion is going to be there and there is an assumption in terms of growth that the government’s opening balance this time is very strong. Putting things in context, 5.8% fiscal deficit for FY24 is an achievable target.
It is very much achievable. In the current context, the government may choose that instead of 5.8%, we will show 6%. I do not think the heavens will fall because they are likely to ensure that the economy is in a very good shape. They are aware that there is a global recession and exports are being impacted for sure. So whether it is 5.7% or 6%, I do not think the market will read too much into that as long as it is going for productive purposes.
The fiscal situation of the government is strong. If one assumes a nominal GDP growth of 9-10% and a capital expenditure front because the Rs 1 lakh crore can easily go back into capital expenditure. Is 9% to 10% reasonable?
Let me just decode these numbers in very simple terms. Roughly, I expect the government to do Rs 25 lakh crore of total revenue in FY23 and roughly Rs 42 lakh crore of total expenditure, give or take a few thousand crore here or there just for the purpose of simplicity. Fiscal deficit will be in the range of Rs 17 lakh crore I expect as the government has a track record of being conservative about guiding the revenue assumptions. So they may guide for maybe 10% revenue expenditure and revenue side and on the expenditure side obviously they will spend more.
Capital expenditure as a percentage of overall expenditure last year was also 19% which is one of the highest India has seen and 19% is likely to go up more, maybe 20% or slightly more than 20% in the current year. As we discussed earlier, the government has the ammunition to do the extra expenditure. If they put 20% of the total expenditure into capital expenditure, it will be a big boost to a lot of sectors and the economy in general.