The FY23 Union Budget seeks to upgrade the quality of fiscal impulse by generating conventional and new-age multipliers for economic growth.
Download ReportIndia Union Budget FY23:Gati for growth
The FY23 Union Budget seeks to upgrade the quality of fiscal impulse by generating conventional and new-age multipliers for economic growth. With the economy slowly emerging from the shadows of the pandemic, it is critical to ensure that the initial growth fizz as reflected in the V-shaped recovery in FY22, acquires a sustainable gati (speed) for a healthy macroeconomic balance. Our expectation of moderate fiscal consolidation, capex push, and ease of doing business were broadly met along with phasing out of certain pandemic era exceptional expenditure support. While the fiscal arithmetic appears credible, bordering on the side of being conservative, scaling back of divestment target turned out to be disappointing.
The bond market reacted negatively with the 10Y g-sec yield closing the day higher by 17 bps. The triple whammy of higher-than-expected market borrowing in FY23, lack of any announcement on India’s inclusion in global bond indices, and expectation of monetary policy normalization by the RBI in the coming months would continue to weigh on sentiment. We expect the 10Y benchmark yield to drift further higher towards 7.25% by Mar-23. In case of rupee, the likely absence of index dedicated flows will lower the BoP surplus in FY23 and make it vulnerable to global volatility on account of monetary policy normalization by systemically important central banks. We continue to stick to our call of gradual depreciation and expect USDINR close to 76 by Mar-22 and 78 by Mar-23.