The Indian government has sought parliamentary approval for additional net spending of Rs 58,378 crore in the first batch of supplementary demands for this fiscal year. This has implications for investors, companies, industries and the broader economy.
Analysis of this news for a layman:
The government has asked the Indian parliament to allow it to spend an extra Rs 58,378 crore net this financial year (April 2022-March 2023), over and above what was originally budgeted. This is the first request for additional spending approval. The total additional gross spending sought is over Rs 1.29 lakh crore, but savings from other areas will offset some of that. Even with this extra spending, the government expects to meet its overall fiscal deficit target of 5.9% of GDP for the full year.
This additional spending approval is relatively routine and smaller in scale compared to last year. The government’s finances appear under control despite global pressures like the Ukraine war and commodity inflation. Key areas of additional spending are fertilizer subsidy, food subsidy and rural employment program. While sectors like agriculture and rural infrastructure get a boost in the short term, no major structural reform is evident. The moderate additional outgo suggests fiscal prudence despite pre-election spending pressures. Stable public finances bode well for inflation, interest rates and overall business environment.
Impact on Retail Investors:
For retail investors, the government’s commitment to fiscal targets gives confidence that inflation will remain in RBI’s target range and interest rates will soften gradually. This helps protect purchasing power and savings return over the medium term. Investors can deploy cash steadily into equity and debt mutual funds to take advantage of corrections amid global volatility. Tax rules and regulations affecting personal finance are also less likely to see major changes thanks to stable public finances. Consumption-oriented sectors like auto, FMCG and retail could benefit from rural boost.
Impact on Industries:
Industries like fertilizers, food processing and rural infrastructure can benefit directly from higher allocation and spending. Farm sector support also encourages input usage helping agrichemicals. Election-driven rural spending typically aids two-wheelers, tractors, affordable housing etc. Exporters however may face challenges if INR strengthens as deficit stays controlled. The fiscal boost for now seems limited to select pockets rather than economy-wide. executions
Long Term Benefits & Negatives:
In the long run, avoiding largesse and populism during election season bodes well for structural reforms progress when the new government takes over after 2024 polls. Stable policy direction, consistent targets and prudent spending are positive for attracting foreign capital and technology into India. However lack of major new production linked incentives or boosts beyond farming doesn’t rapidly create global manufacturing champions from India just yet.
Short Term Benefits & Negatives:
In the near term, timely support for rural areas prevents distress and maintains consumption levels during what is predicted to be a global slowdown/recession in 2023. Steady farm sector funding sets stage for normal monsoons to aid India’s GDP growth outpacing world. However lack of urban infrastructure boost means supply bottlenecks, inflation risks may resurface with recovery. Additional subsidies also risk channeling scarce taxpayer money away from health and education spending.
Companies will gain from this:
Fertilizer companies like Coromandel International, Chambal Fertilisers, National Fertilizers; Agri input producers PI Industries, Dhanuka Agritech, UPL; Two-wheeler makers Hero Moto, Bajaj Auto; Tractor firms Escorts, Mahindra & Mahindra; Low-cost housing financiers Repco Home Finance, Aavas Financiers can benefit from budget changes.
Companies which will lose from this:
Exporters like IT firms TCS, Infosys, HCL Tech may see some currency headwinds limiting dollar revenue growth. Infra companies expecting urban metro, road project funding like KEC International, IRB Infra may see lower contracts vs expectations.
The targeted nature of spending boost aimed at agriculture and farmer welfare reflects political priorities in the run up to 2024 national elections. Investors can prepare their portfolios to capture the sectors set to gain the most advantage in this pre-election year rather than broader economy.
The Centre’s first batch of supplementary spending for fiscal year 2023 seeks an additional Rs 58,378 crore, fairly routine compared to past years when subsidies ballooned. With targeted priority spending yet fiscal targets maintained, investors can take confidence of stability.
ET Bureau. (2023, December 7). Centre Seeks House Approval for Extra Net Spending of ₹58,378 cr. The Economic Times.