Four economic trends will determine the state of India's economy

- The budget reflects the changing perception towards capital expenditure, inflation, fiscal deficit and globalization globally

Four major trends are likely to affect the Indian economy in the coming years. These trends are clearly visible in the budget presented for the financial year 2023-24. These trends are as follows: The first important trend is that capital expenditure will drive the economy in the medium term. This can be said after considering the current situation. The latest Economic Survey highlights the fact that government capital expenditure is expected to increase to 2.9 percent of GDP in FY2023 from a long-term average of 1.7 percent of gross domestic product (GDP) in the period FY2009 to FY2020. In the budget presented a few days ago, capital expenditure is expected to rise to 3.3 percent of GDP in fiscal 2024. This figure points to an uncomfortable fact.

Private sector investment has been sluggish and the government has had to make up for the shortfall. Fluctuations in private investment are not unique to India. This is part of a trend increasingly seen in emerging markets and developing countries. According to the World Bank's Global Economic Prospects Report (2023), investment growth in emerging markets and developing countries in 2022 is about 5 percent below the 2000-2021 average and about 0.5 percent below the 2000-2011 average.

The World Bank does not expect private investment to reach pre-Covid pandemic levels in 2024. According to the World Bank, there are several factors behind the slow pace of investment in emerging markets and developing countries. These factors include sluggish production during 2010-19, weak commodity prices, high volatility in capital flows to emerging markets and developing countries, economic and geopolitical uncertainty, and high debt burdens at the public and private levels. Many of these factors apply to India.

The impact of reduction in consumption due to reduction in fiscal deficit can be moderated only if the increase in capital expenditure is greater than the reduction in fiscal deficit. The increase in capital expenditure will be 40 basis points, while the reduction in fiscal deficit will be 50 basis points, according to estimates shown in the budget. Thus the end result will be that the economy will slow down.

Another important trend is that the fiscal deficit will remain high. The Finance Minister has maintained the target of limiting the fiscal deficit to 6.4 percent of GDP in FY 2022-23. Analysts have welcomed it. In the budget, the fiscal deficit has been estimated at 5.9 percent in the year 2023-24.

If the conflict in Ukraine escalates and the situation worsens globally, government subsidies will increase (subsidies are cut in fiscal year 2023-24) and then the old situation will return. Some concessions etc. may be given before 2024 elections. A fundamental change in the fiscal situation will occur only when the tax-GDP ratio increases significantly (say to 12 percent of GDP) or the capital gain from disinvestment is very high, or both. But either way, the scene doesn't look good. The tax-GDP ratio is estimated to be 11.1 percent in FY 2023-24. The highest level of this ratio has been 11.4 percent in the last decade.

As far as disinvestment proceeds are concerned, the Economic Survey says that the government sold stakes in PSUs in the eight-year period from 2015 to January 2023 for a total of Rs. 4 lakh crore (Rs. 50,000 crore annually). . During this entire period out of policy sales only Rs. 69,412 crores has been earned. Fiscal responsibility and budget management It seems that the target of 3 percent is currently difficult to achieve.

Government deficits are rising everywhere and public debt is rising after the global financial crisis and the Covid pandemic. India is no exception to this. In the period 2005 to 2021, India's debt-GDP ratio has increased from 81 percent to 85 percent. But it seems normal compared to other countries.

A third important trend is that the inflation rate will remain high. Inflation can reach high levels due to high fiscal deficit. Apart from this, mutual cooperation between the countries of the world will decrease. This process may be gradual but the direction seems quite clear.

The main objective of globalization is to get goods and services anywhere in the world at cheaper prices. History shows that globalization has helped bring down inflation. It is a matter of concern that the concept of globalization is now weakening.

After the outbreak of the Covid pandemic and fighting in Ukraine, every country is reviewing its dependence on foreign suppliers for various goods and services. The US and its allies are working to reduce their dependence on China as much as possible. Reducing China's influence in the world has become the new strategy of America and Western countries.

A fourth important trend is that self-sufficiency and import substitution have become the new reality. Every country in the world will promote more production at the local level. This will be more important for the leading economic and military powers. India is going to become the third largest economy in the world and its military strength is also increasing. In this context, an inclination towards self-sufficiency is certainly possible. We should not worry unduly about this tendency.

India is also doing what other countries of the world are following. Some changes have been made in the charges in the budget. According to analysts, this step has been taken to promote the local industry.

Industrial policy will continue to be an integral part of economic policy in the coming years. Macroeconomic trends in the coming years will depend on these four trends.