India Set to borrow Record 16 Trillion Rupees in Fiscal 2023/24 – Reuters Poll

In the fiscal year ending March 202, India’s government will borrow a record 16 trillion rupees ($198 billion).
According to a Reuters poll of economists, infrastructure spending and fiscal discipline should be the government’s top fiscal priorities.

The federal debt has more than doubled in the past four years as Prime Minister Narendra Modi’s government has spent heavily to protect the economy from the effects of the COVID-19 pandemic and provide relief to the poor.

The February 1 budget is the last full budget before the 2024 national elections and ahead of elections in several populous states that will be a major test for the ruling Bharatiya Janata Party (BJP).

However, the decline in tax receipts and the slowdown in economic growth expected in the next financial year will limit the government’s ability to reduce borrowing in the near future. According to the average forecast for 43 economists, Gross borrowing will reach 16 trillion rupees in the next fiscal year, more than 2022/23, with about 14.2 trillion rupees.

Forecasts ranged from 14.8 trillion to 17.2 trillion rupees Even if it is at the lower end of the range, 2023/2024
Annual gross loan easily recordable.When Modi’s BJP came to power in 2014, the country’s annual gross debt was just 5.92 trillion rupees.

“The main reason why total borrowing is still quite high is the repayment,” said Dhiraj Nim, an economist at ANZ. “The government has borrowed heavily in recent years to finance the pandemic, which means the repayment burden will now be quite high for many years.”
Nim anticipates repayments in 2023/24 season at approximately  4.4 trillion rupees. 

Although economists in a separate Reuters poll predicted that the government would reduce the budget deficit in 2023/2024
to 6.0 percent of GDP in 2011, it is still well above the average of 4-5 percent has been achieved since the 1970s and is far from the target 4.5% by 2025/26. 

The deficit is more than double that of the pandemic. Rising interest rates have increased the burden of repaying borrowed money.

Debt Sustainability 

The International Monetary Fund said last month that India needs a more ambitious plan to stabilise public finances to ensure debt sustainability in the medium term. The government says its current plan is already up to the task.
Federal and state government debt is 83% of annual gross domestic product (GDP), higher than many other emerging economies. The country’s sovereign credit rating is just one notch above junk.
“Fiscal deficit and public debt are at historic highs, and India needs to delicately balance fiscal discipline with the need to support growth.” “The government needs to give a big boost to investment,” said Union Economist Sujit Kumar. Bank of India
Kumar added that infrastructure investment is an obvious priority for spending, but the economic slowdown will reduce taxes, which will limit the government’s ability to keep capital spending as fast as it has been since 2020/21.
The survey also showed that the capital expenditure of the Indian government will rise to a record 8.85 trillion rupees in the next fiscal year, or about 2.95 percent of GDP.
But growth in such spending is likely to slow to just under half the pace of the past three years.
India needs enough government funding to renew its infrastructure and meet its goal of becoming an alternative to China as the world’s factory.
When asked what the two most urgent budget priorities would be, only half of the respondents (18 of 36) answered fiscal discipline and infrastructure investments. The remaining 18 categories recommended job creation, education, health care, or rural development.
The Indian government is cutting food and fertilisers subsidies to 3.7 trillion rupees, more than 25 percent less than the roughly 5 trillion rupees in the 2022–2023 budget, according to a study.

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