Why a lower GDP growth rate will be factored in FY 24 budget?

24 Jan 2023 , 05:05 PM

It is expected that Budget for FY 24 will factor in a lower GDP growth rate for the Indian economy. The projected GDP growth rate of the government in FY 24 Budget is likely to be between 6% and 6.3%. 

Globally, economic slowdown is likely to worsen in key economies such as USA and UK, in 2023. This will also lower demand for exports from India in these economies. USA is one of the biggest trading partners of India. In 2021, India’s exports to USA stood at $ 71.51 billion. The hawkish stand that the US Central Bank, US Federal Reserve, has taken on inflation is likely to exacerbate economic slowdown in the country this year. 

 US Federal Reserve in December forecasted that US GDP growth rate will be just 0.5% in 2023. Many are expecting that the US economy will enter into a recession in 2023 or in early 2024. Recession means when a country posts negative GDP growth in two consecutive quarters- the economy contracts instead of expanding. Further slowdown or recession in US economy will worsen the global slowdown because US is the biggest importer of goods and services from a large number of countries.

High inflation rate in India will have an adverse impact on real income of people. This is likely to have some adverse impact on consumption and demand in the economy. The prevailing high interest rate scenario will also have some adverse impact on investment and gross capital formation in the year. 

GDP is the sum of Consumption, Investment, Government Expenditure and Net Exports (Exports – Imports). Higher Government expenditure may offset some of the slowdown in Consumption, Investment and Net Exports in FY 24. But GDP growth rate is still very likely to slow down. Budgetary forecast for GDP in the year will therefore be lower too. The Government is likely to factor in a more moderate GDP growth rate expectation when computing fiscal deficit, revenue deficit and other numbers that make up the budget.