The government's decision to target a fiscal deficit of 5.1 percent of GDP in 2024-25 may have left markets stunned, but there was no intent to "make a statement" of any sort with such aggressive consolidation, Chief Economic Adviser V Anantha Nageswaran has said, adding that the interim Budget had not made any unrealistic assumptions to arrive at the lower-than-expected target.
"It's not that we are trying to make a statement here. We are comfortable with the numbers," Nageswaran told Moneycontrol in an interview after the interim Budget.
Economists polled by Moneycontrol had expected the fiscal deficit target for the next financial year to be set at 5.3 percent. However, the Indian government already has one eye on meeting its stated objective of cutting the deficit down to 4.5 percent or lower by 2025-26. Nageawaran said that commitment had to be reinforced.
"We were at 5.9 percent when the Budget exercise started last year. So we need to demonstrate commitment to that path. We have to demonstrate credibility," he said, emphatically denying that the inclusion of Indian government bonds on global indices later this year had any role to play in setting the deficit target for 2024-25.
As for what ratings agencies think, Nageswaran said while the government would welcome an upgrade, it was not "chasing" one.
“At the end of the day, it is their prerogative. We can only do what we have to do and we are demonstrating that we are doing that. But they shouldn't be shifting the goalposts," the government's top economist said, echoing Finance Minister Nirmala Sitharaman's post-Budget comments.
When asked if the announcement of any major policies in the full Budget post the Lok Sabha elections could leave the fiscal deficit target untenable, Nageswaran refused to comment, saying it is "too premature to speculate on that".
Four years of 7% growth?
Being an interim Budget, Nageswaran and his team did not present an Economic Survey on January 31. Instead, on January 29, they published a report reviewing the Indian economy where they said the GDP may grow close to 7 percent in 2024-25. Nageswaran has stuck to that approximation.
"I think 6.5-7 percent would be a good way to peg it...maybe tending towards the upper end of this range, at this point. But I think at least one quarter or four months of data has to pass before we can talk about the balance of risks," he said.
For Nageswaran, giving precise growth forecasts is an exercise in futility as they always end up being wrong, except by chance.
"We are here to talk about ranges of outcomes. That's why it is quite possible that we may end up achieving a fourth year of 7 percent or 7 percent-plus growth," he said.
On January 5, the statistics ministry said the Indian economy may post a growth rate of 7.3 percent in 2023-24, up from 7.2 percent in 2022-23. In 2021-22, the GDP had increased by 9.1 percent.
No K-shaped recovery
While India's recent growth numbers have surpassed all expectations, the general consensus among economists is that the post-pandemic recovery has been led by the upper class, with growth in demand for premium goods outstripping that for the mass-market segment. This pattern of recovery has been labelled 'K-shaped'.
The government, however, has rejected this thesis, with Nageswaran adding to the criticism recently voiced by the finance minister.
"This is like someone unthinkingly using the phrase 'Hindu rate of growth' that has stuck for no particular reason. It is the same Indian economy that has seen its decadal growth rates keep rising. So similarly, these kinds of alphabets are meaningless," the chief economic adviser said.
However, Nageswaran did not deny growth has been uneven, with the coronavirus pandemic leading to reverse migration and temporarily resulting in an increase in the agricultural workforce.
"We don't have data beyond 2021-22, but if you look at the RBI's KLEMS (capital, labour, energy, material, services) database, that shows that in 2021-22, manufacturing created a large number of jobs and the reverse migration began to reverse. But once you see the data for 2022-23 and 2023-24, you will see that it is beginning to happen. So obviously, until such time that you are confident of these trends, then the government would continue to make sure that it provides some sort of a buffer, or insurance to the public," Nageswaran said, referring to the decision to extend the free foodgrain scheme for an additional five years until 2028.
Capex not slacking
As expected, the interim Budget raised the capital expenditure target for next year to a fresh record high of Rs 11.11 lakh crore, although the pace of increase cooled sharply to 11.1 percent compared to the 2023-24 budget estimate – something Nageswaran had indicated would happen way back in December 2022.
"With every passing year, the base becomes higher. So you can't maintain the same growth rate on a higher base," he said.
When asked if there were any concerns over private sector capex being concentrated in certain sectors such as construction, Nageswaran dismissed the suggestion as "hair-splitting".
"Obviously, we would love to see much more all-round development. But certain places will start ahead of others. You are talking about a large, continental country – not everybody will be firing on all cylinders at all times."
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