Before budget, a few positives blink on Sitharaman's dashboard

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Budget 2024: A few positives blink on Sitharaman's dashboard before budget

Union finance minister Nirmala Sitharaman is set to present the last full budget of the Narendra Modi 2.0 government on February 1. While the common man's expectations are sky high, the government has a herculean task at hand to balance fiscal prudence with populist measures. A look at some key data points that will influence the budget.

Before budget, a few positives blink on Sitharaman's dashboard

After two years of below-par growth, the Indian economy is finally set to clock a higher GDP number in the current fiscal. The Economic Times Now Network Survey of Economists pegs the GDP growth for FY24 at 6.3%. While the first advance estimates had put the number at 6.5%, economists expect the slowdown in the third quarter to drag down the full-year number. A higher GDP growth number will give the government more leeway to increase its spending on key sectors.

The other positive for the government is the lower inflation number. After remaining stubbornly high for most of 2022, CPI inflation finally cooled below the Reserve Bank of India's upper tolerance band of 6% in December. While food inflation continues to remain sticky, economists expect inflation to moderate further in the coming months, helped by a favourable base effect and the central bank's rate hikes. Lower inflation will help the government keep a lid on prices and reduce the pressure on household budgets.

However, not everything is hunky-dory on the economic front. After two years of strong recovery, merchandise exports are finally set to contract in the current fiscal. The ET Now Network Survey of Economists pegs merchandise exports at $420 billion for FY24, down from $432 billion in the previous fiscal. While the government has been targeting a $500 billion merchandise export number for some time now, the global slowdown and weak external demand have made it difficult to achieve this goal.

The other concern for the government is the widening trade deficit. After hitting a record high of $32 billion in July, the merchandise trade deficit has narrowed in recent months, helped by a decline in imports. However, the trade deficit for the full fiscal is still expected to be higher than the previous year's number. A wider trade deficit puts pressure on the rupee and can lead to capital outflows.

Overall, the Indian economy is expected to grow at a slower pace in FY24, with inflation moderating and merchandise exports contracting. While a few positives blink on the dashboard before the budget, the government has a tough task at hand to balance fiscal prudence with populist measures.