HSBC expects Budget 2023 to choose macro stability over growth

India’s upcoming budget will likely prioritize macro-economic challenges over growth and focus on providing a credible fiscal consolidation roadmap, according to Pranjul Bhandari, chief India economist at HSBC Holding Plc.

High inflation and widening trade deficit that posed macroeconomic stability challenges last year will lessen in severity, but growth will taper off too, Bhandari said in an interview Monday with Bloomberg Television’s Rishaad Salamat. “It’s hard for the two to co-exist.”

India’s federal budget due Feb. 1 will be the final-full year spending plan before national elections in 2024, and comes as high interest rates temper demand globally and at home.

In such a scenario, the government will look to bring down fiscal deficit to a “more sustainable” level, Bhandari said, pegging the gap at 5.8% of the gross domestic product for the financial year starting April 1, from 6.4% in the current year. The restructured food subsidy bill and improved expenditure efficiency will help, she added.

The manufacturing sector may see some more incentives, especially in the electronics and small scale industry, but the government “would not be extremely profligate,” Bhandari said.

The Reserve Bank of India may increase its benchmark rate by 25 basis points in Feb 8. monetary policy announcement, “but we also think this is perhaps the last rate hike for now,” she said, as softening food prices bring down the overall headline inflation within the target 2%-6% range.