Several issues including the risk of recession will have an impact on the budget

- A big opportunity for finance minister to make India an alternative to China

While the Indian economy is currently the best performer among the world's major economies, Finance Minister Nirmala Sitharaman is expected to adopt a liberal policy on the economic front in the upcoming budget. However, there is no doubt that issues like the risk of recession in developed countries, Russia-Ukraine war, bitter relations with China and high crude oil prices will have an impact on the budget. The finance minister will also be forced to consider the situation of Corona which is taking shape at home and globally.

Compared to other economies, with lower levels of inflation and relatively higher economic growth rates than most G20 countries, India has been able to absorb or combat external shocks well in 2022. The country's fiscal and current account deficits have been high, but relatively strong forex reserves and a flexible exchange rate policy have succeeded in sustaining the economy against large outflows of money.

The country's economic growth rate for the current fiscal year is expected to be below 7 percent and inflation below 6 percent. For America, Europe and China, the year 2022 has passed with an adverse economic situation and there is no possibility of improvement in the situation in 2023 and these countries are on the verge of falling into recession. But India is expected to be a strong economy. Among the G20 countries, apart from India, Saudi Arabia is achieving a high economic growth rate. High crude oil prices have supported Saudi Arabia's growth rate. While India has passed the year 2022, amid global economic challenges, a clear estimate of how the year 2023 will be for India is likely to be seen in the next budget.

At a time when the global economy and trade are slowing down, the budget for the financial year 2023-24 can be said to be a big opportunity for the finance minister to make India an alternative to China at the global level. The country's banking sector has emerged strongly over the past year and credit growth has also been strong, but credit growth has been fueled by retail demand, while corporate credit is yet to pick up. The cost of doing business for our industries is still high compared to smaller countries like Vietnam, making it difficult for India to compete in the world market.

Former RBI Governor Raghuram Rajan recently said that he sees the possibility of a further increase in tariffs by the Modi government in the budget for the financial year 2023-24. The increase in tariffs will make India an expensive hub, making it difficult for it to become an alternative to China. If India wants to become a credible alternative to China, it should stop raising tariffs. He opined that high tariffs will make foreign companies reluctant to migrate here from China. India is a country that foreign companies are looking at, but it is not the first choice for companies as companies will prefer countries like Vietnam where policies are stable and less volatile. India has to keep trade policies stable and not be particularly against Foreign Direct Investment (FDI). India still has a long way to go in terms of FDI.

Measures to reduce the cost of doing business without relying solely on production linked incentive schemes to attract investment in the country would be welcome. Energy and logistic costs have been a major challenge for industries.

The share of the government in infrastructure sector investments in the country is higher than that of the private sector. Capital expenditure by the government to increase demand through employment is welcome, but to maintain fiscal discipline it is necessary that investments by the private sector outpace government spending. Industry is eyeing how issues like laxity in regulatory norms and processes are addressed in the budget.

This will be the government's last chance for fiscal discipline as the next budget will be the last full-fledged budget for the central government in view of five to six state assembly elections in the country in 2023 and then the Lok Sabha elections in 2024. However, there are indications that the government does not intend to cut subsidy expenditure. Discontinuing the Pradhan Mantri Garib Kalyan Anna Yojana will save money in the exchequer but free food grains under the public distribution system will increase fiscal pressure in the medium term, as it will be necessary for the central government to increase the support prices for the agriculturists in view of the state assembly elections.

If the fiscal deficit is to be brought down to 4.50 percent, the government will either have to bring a proposal in the budget like cutting subsidies or take steps to increase revenue through taxes. When China is a threat to India on the defense front, the possibility of seeing an increase in the defense budget is not ruled out. When the Finance Minister presents the budget for the next financial year in a few days, he will have to exercise to meet more demands amid short budgetary resources. It will be interesting to see how the budget exercise fares amidst the challenging environment while keeping everyone happy while it is impossible for the finance minister to keep the growth dynamic.