Budget 2023-24 Expectation: How India can attract investments and boost up forex reserves

The Indian economy has shown immense resilience to emerge as the fastest-growing G20 economy this year, despite tight monetary conditions and a slowing global economy. Even with increased allocations for capital expenditure in Budget 2022, the government is likely to meet its fiscal deficit in the upcoming budget on the back of healthy revenue growth. In line with its fiscal consolidation commitment, the central government is on track to meet its fiscal deficit target of 6.4 per cent of the GDP for 2022-23, and the general government deficit is projected to decline to 9.6 per cent from 10.3 per cent in FY21/22 and 13.3 per cent in FY20/21. As per the government, it achieved around 55 per cent of the capital expenditure in the first half of the fiscal year. • The Goods and Services Tax (GST) collections grew by 11 per cent to Rs 1.46 lakh crore in November due to increased consumer spending. Revenues have been on an upswing and have stayed above 1.4 lakh crore for nine months in a row. • Direct tax collections have also been on the rise, increasing by 24% to Rs 8.77 lakh crore in the April-November of the current financial year, accounting for 61.79% of the full-year Budget Estimates (BE) of direct tax collection for FY23. This growth has been aided by the growing formalisation of the economy and better compliance. If the current trend of growing buoyancy in tax revenues continues, the government will also be able to lower the fiscal deficit to below 4.5 per cent of GDP by 2025-26 as intended. While the government’s tax revenues have been on the upswing, likely helping it meet its fiscal deficit for FY 22-23, the country’s foreign exchange reserves have been on a downward trend since the past year. The decline in India’s forex reserves has come just when the government is going full steam ahead with its manufacturing push through the introduction of PLI schemes for various sectors. • As per the RBI’s October 2022 Bulletin, India’s foreign exchange reserves in September 2021 were equivalent to almost 15 months of imports, while its reserves in October 2022 worth $532.9 billion only accounted for around 8.7 months’ worth of imports projected for the current financial year A core reason attributed by many for the substantial downfall in India’s forex reserves is the onset of the Russia-Ukraine war and its global impact, which led to the Indian rupee falling nearly 12% over the past year and was the primary trigger for the downfall of India’s foreign exchange reserves. • As per the Reserve Bank of India’s (RBI) Governor in September 2022, 67 per cent of the decline in foreign reserves in the current financial year was due to revaluation in the face of a strengthening dollar. • The Reserve Bank of India has spent nearly $118 Billion to support and defend the rupee and curb excessive volatility. The RBI’s consistent defence of the rupee has resulted in the currency emerging as a better performer than many of its peers. While the RBI reserves have taken a hit over the past year, the present quantity remains significantly more than before. Measures to boost investments: Healthy foreign exchange reserves are essential for India’s macroeconomic stability. Despite the slump in forex reserves over the past year, the country still boasts sufficient foreign exchange to cover more than six months of imports, allaying any immediate fears of a panic or a repeat of the 1991 BOP crisis. In recent years, the Indian government has taken several steps to encourage investment and make it easier for foreign companies to do business. This includes opening up more sectors for foreign investment and simplifying the process for obtaining necessary approvals and licenses. However, boosting manufacturing remains the best way for the country to attract investment and boost foreign exchange reserves. The Production Linked Incentive (PLI) scheme is the government’s flagship initiative to boost domestic manufacturing and showcase the government’s intent to promote healthy backward integration while elevating India’s position as a global manufacturing hub. The draft Industrial Policy 2022, currently out for consultations with other ministries, aims to develop mega clusters that can integrate with global supply chains and serve the needs of key sectors such as heavy engineering, electronics, food processing, drugs, semiconductors, and automobiles. The government has also been hard at work on a host of measures for boosting investment. This includes the Gati Shakti initiative, the recently introduced logistics policy 2022 and the draft Industrial Policy 2022-Make in India for the world. Together, the three policies have the potential to improve competitiveness, achieve international scale, integration with global supply chains, and facilitate the movement of the local industry up the value chain. The author is the Managing Director, Primus Partners. Views are personal.  Read all the Latest News , Trending News ,  Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.