Moneycontrol Pro Weekender | The Budget must set the stage for strong long-term growth 

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Dear Reader,

The big question in the forthcoming interim Budget is: Will it be a pre-election one, replete with sops? At first glance, there appears to be little need for handouts, what with real GDP growth widely expected to be around 7 percent for the next few years. Corporate and bank balance sheets are in fine shape and investment demand is powering the economy. Bank credit is growing robustly. The stock markets are scaling new highs. 

It’s true that the pre-election interim Budget of 2019 was a populist one, as we pointed out here. But then, real GDP growth in 2023-24 is estimated at 7.3 percent while it was 6.5 percent in 2018-19. Surely, the economy can now do without new sops?

But look under the hood and a rather different picture emerges. First and foremost, as the IMF’s Fiscal Monitor points out, the overall deficit of the Centre and the states is estimated to be 8.8 percent of GDP in 2023-24, compared to 6.4 percent in 2018-19. And the gross debt of the Centre and the states is estimated at 81.9 percent of GDP in 2023-24, against 70.4 percent of GDP in 2018-19. What’s more, the central government has promised to prune its fiscal deficit down to 4.5 percent of GDP by 2025-26, from the current fiscal year’s estimate of 5.9 percent. Hence, the need for substantial fiscal consolidation. That’s why IndusInd Bank chief economist Gaurav Kapur wrote here: “The Budget should thus focus on strengthening the long-term growth impulses provided by public investments, building fiscal buffers to counter future shocks, and putting public debt on a downward path to free up space for productive spending.”

But there’s a catch. Consumption growth, the GDP estimates show, will be the lowest in many years in the current fiscal year. Growth in the farm sector is estimated to be a mere 1.8 percent year-on-year. Average real rural wages for men in November, the latest month for which data are available from the Labour Bureau, show y-o-y growth of a piffling 0.2 percent. Rural food inflation, which was 0.2 percent in 2018-19, was at 8.97 percent in December 2023.  

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Manas Chakravarty

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Moreover, our columnist Latha Venkatesh wrote that Niti Aayog’s claim of a steep fall in poverty in the last nine years doesn’t pass the smell test. The flip side of the rising premiumisation in consumer markets is the poor performance of the mass market. The government’s Periodic Labour Force data show a rising proportion of unpaid helpers among those considered to be employed. And let’s not forget that 80 crore Indians are still getting 5 kgs of foodgrain free every month—If they were really doing well, why do they need the subsidy?
For all these reasons, there’s a possibility that the Budget may go in for more handouts this year too, or at least increase spending in rural areas.

But it’s not a foregone conclusion. One difference between the last interim Budget and now is that in 2018-19, the construction sector was growing at 6.5 percent, while it’s estimated to grow 10.7 percent in 2023-24, thanks to the government’s capex push. That should provide more employment for the masses. In other words, instead of increasing consumption subsidies, the government must continue its capex push, perhaps increasing the incentives for its affordable housing and other programmes aimed at augmenting capital expenditure by the corporate sector. That, combined with fiscal consolidation and low government borrowing, would reinforce the incipient capex recovery and lead to a new growth cycle. A great opportunity is the capex needed for the transition to a green economy. After all, the growth spurts of the East Asian economies were on account of strong and sustained high capital investment to GDP ratios—in China, for example, is excess of 40 percent.  

Funding, of course, can easily be arranged if the government goes in for disinvestment, privatisation and asset monetisation. Putting in place such a framework for long-term growth would be the ideal Budget for the markets. 

Do keep a close watch on our recommendations after the Budget this year, especially after the stellar performance of our MC Pro Budget 2023 Portfolio. 

Cheers, Manas Chakravarty 

Here are some of the other stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets: 

Stocks 

Zee Entertainment, Paytm, Persistent Systems, Metro Brands, Colgate, Axis Bank, Polycab, Cyient DLM, Sona BLW, TVS,  

Bajaj Auto, Tech Mahindra, JSW Energy, Pidilite Industries, Havells India, Laurus Labs

Budget 2024 

Cement supply uptick may keep prices in check 

Defence capex sees renewed thrust 

Scope to unlock tourism potential 

What past performance tells us of market behaviour on Interim Budget day 

Govt support key to India’s electrification story 

Companies and industry 

IDFC First Bank’s 5-year plan, Axis Bank, Bajaj Auto, Tech Mahindra, Zee Entertainment, Tata Steel,  

Sony needs to introspect on why it signed up to a merger of unequals 

Indian oil and gas firms must pay more attention to geopolitical risks 

Fintechs must realise that the time for reckoning is nigh 

Markets 

Markets near peaks: should investors book profits or hold? 

Did the SEBI FPI ownership norm cause the market to fall? 

Badla financiers are alive and flourishing 

Why 2024 can be the year of bond revival 

Financial Times 

Grumbles about passive investing may have a point 

Martin Wolf: The dangers lurking in our messy and unpredictable world 

Biden’s green spending splurge is a hard model to copy 

Inside Edge 

Oracle punters piggyback on Tortoise fund, HDFC Bank loyalist perseveres, operators go loco on IRCTC 

AK-47 has Rain in his crosshairs, contra view on Sanghi Industries, Zee drama—the next act 

Economy and policy 

Electronics—let the export edge give impetus to local manufacturing 

A robust bus transport system is essential for cities to thrive 

Pro Economic Tracker 

Personal Finance 

After 80% returns in one year, does CPSE ETF still make sense? 

Children settled abroad? Here’s how to Will your assets  

DCB Happy Savings Account offers cashback on UPI transactions: Should you open one? 

Tech & Startups 

Start-up Street: Follow-on funding challenges for Indian start-ups 

Client budgets delayed due to conflicting macro data, says Happiest Minds 

Generative AI will go mainstream over the next 2-3 years: Persistent Systems CEO Sandeep Kalra 

Ram Temple impact 

The Ram Temple and other projects of national rejuvenation 

What makes the Ram temple project a marketing masterclass 

Can Ayodhya impact the Lok Sabha election in the South? 

Others 

The Middle East is now a powder keg waiting to explode