Budget 2023: Morgan Stanley sees focus to be on fiscal consolidation, investment-led growth

• The global investment firm said the government may provide a "credible path" for fiscal deficit reduction in 2023-24
• The government will also reiterate the medium-term roadmap to lower the central government's deficit to 4.5 per cent of GDP.
• On the capital expenditure, Morgan Stanley expects capital expenditure spending to increase to 2.9 per cent of GDP in 2023-24.

In its Budget for 2023-24, the Indian government is expected to focus on gradual fiscal consolidation, continuing to favour investment-driven growth with a push for both public and private capital expenditure, besides focusing on improving the ease of living for its people, said Morgan Stanley.

The global investment firm said the government may provide a "credible path" for fiscal deficit reduction in 2023-24 and reiterate the medium-term roadmap to lower the central government's deficit to 4.5 per cent of GDP.

"We expect the central government's fiscal deficit to narrow to 5.9 per cent of GDP in F2024 from 6.4 per cent in F2023 (estimate). We expect fiscal consolidation on the back of lower subsidy payments, which will also ensure that focus on public capex spending is sustained, thus supporting the growth outlook," it said in a report.

"We build in a gradual fiscal consolidation path as we believe that continued focus on capex spending is beneficial not only from a cyclical perspective but also for the medium-term growth potential of the economy."

On the capital expenditure, Morgan Stanley expects capital expenditure spending to increase to 2.9 per cent of GDP in 2023-24, a tad higher than the 2.8 per cent estimated for the current financial year.

Further, on the inflation, it said the price rise is likely to moderate in 2023-24 as the effect of higher commodity prices wears off on year-on-year terms and supply chains continue to normalize.

India's retail inflation is set to moderate to 5.4 per cent in 2023-24 and to 4.8 per cent in 2024-25 from 6.6 per cent in 2022-23, the Morgan Stanley report said.

Meanwhile, India's retail inflation during the month of December was at 5.72 per cent, data released last week showed.
India's retail inflation rate based on Consumer Price Index was 5.88 per cent in November from 6.77 per cent in October. Retail inflation in India had remained above 6 per cent till October for over three quarters, which was beyond RBI's comfort zone.

Budget 2023-24:
The government is in the process of finalising the Budget document to be presented on February 1.

The formal exercise to prepare the annual Budget for the next financial year (2023-24) commenced on October 10.
Budget 2023 is likely to be the last full Budget of the Modi government in its second term with the next Lok Sabha election due in April-May of 2024.

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