Nomura says Budget 2023 pushes for growth, flags risks to fiscal deficit target

Nomura flagged risks of nominal GDP growth slipping below estimates and hitting tax collections.

With higher capex pegged at 3.3% of GDP, Nomura said that Budget 2023 pushed for growth but flagged the risk of fiscal deficit slippage owing to a higher than budgeted revenue expenditure and slower tax collections.
In its report analysing the Union Budget, Nomura has flagged the challenge of achieving the fiscal deficit target of 5.9 per cent in FY24 mainly due to the optimistic nominal growth projections.

"But fiscal targets could be harder to achieve: In our view, a combination of optimistic nominal GDP growth, higher tax buoyancies, and low revex will challenge the fiscal deficit target of 5.9% of GDP, even as a potential shortfall in capex could yield some fiscal savings," the report said.

Announcing the Union Budget for 2023-24, Finance Minister Nirmala Sitharaman beat expectations when she allocated a massive Rs 10 lakh crore for capital expenditure.

Catch the Budget fine print here

Nomura, in its report, said that the slashing of the revenue expenditure has resulted in more money for capital expenditure but has also flagged the risk of it going up due to slowing growth and a spate of state elections.

"The combination of slowing growth and a busy political calendar involving a number of key state elections and general elections in Q2 2024, makes this revex compression a tall task, in our view."

It also highlighted the lower spending on rural employment guarantee scheme.

However, the government can end up saving some money if it doesn't achieve the bumper capex spend of 3.3% of GDP at Rs 10 lakh crore.

"Capex projects often face execution hurdles including identification of projects, on-the-ground implementation, and coordination with different agencies, so allocating resources is not necessarily a guarantee of project delivery."