Limited Room for Public Spending - Santosh Mehrotra

- Financial Express

The Union Government will present its ninth and last full budget before national elections in early 2024. But none of the growth engines inspire optimism, Santosh Mehrotra writes in Financial Express. 

Nearly 60 percent of India's GDP is accounted for by private onsumption expenditure. However, since demonetisation consumer expenditure has been tepid as job growth fell sharply. Per capita consumption in 2022-23 is just above the level of 2019-20. 

Private investment, the second most important growth driver, is dependent on expectations about consumption growth. Private investment was 31.3 percent in 2013-14, fell to 29 percent in 2018-19 and 26.6 percent in 2020-21. It recovered somewhat to 29.2 percent in 2022-23. Capacity utilization currently is just 74 percent, not enough to encourage priavate firms to invest cash or hire people.

The remaining two engines are exports and government spending. Services exports have been buoyant, but merchandise exports have been tepid since 2014. They recovered, but the Russian invasion of Ukraine and the recession in developed nations bode ill for Indian exports. Finally, there are limits on the government raising public spending because the debt to GDP ratio rose from 65 percent to 90 percent of GDP during Covid, while the need to contain the fiscal deficit to close to 10 percent of GDP will be overwhelming.   

None of the four engines offer grounds for optimism. The government must avoid the temptation to announce freebies.

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