Budget’s focus on capex to crowd-in private investment, push growth to 7%: RBI article

“In our view, the instrument of decoupling will be the Union Budget by raising India’s growth prospects over the period 2023-27; and raising India’s potential growth,” said the article ‘State of the Economy’ published in the RBI’s February 2023 Bulletin.

The Union Budget’s focus on capital expenditure is expected to crowd-in private investment and push the GDP growth rate close to 7 per cent in the next financial year beginning April 1, said a Reserve Bank article on ‘State of the Economy’.

In 2023-24, capital expenditure is budgeted at Rs 10 lakh crore which will constitute 3.3 per cent of GDP.

“We believe that India will decouple from macroeconomic projections of current vintage and also from the rest of the world.

“In our view, the instrument of decoupling will be the Union Budget by raising India’s growth prospects over the period 2023-27; and raising India’s potential growth,” said the article ‘State of the Economy’ published in the RBI’s February 2023 Bulletin.

It further said the Union Budget’s tax, capex and fiscal consolidation proposals can take India’s real GDP growth close to 7 per cent in 2023-24 if they are effectively implemented.

“The Union Budget 2023-24’s emphasis on capital expenditure is expected to crowd-in private investment, strengthen job creation and demand, and raise India’s potential growth,” said the article authored by a team lead by RBI Deputy Governor Michael Debabrata Patra.

The Economic Survey tabled in Parliament a day head of the Union Budget projected the GDP growth at 6.5 per cent as the base.

The central bank, however, said the views expressed in the article are of the authors and do not represent the views of the Reserve Bank of India (RBI).

Recalling mythologies across civilisations, the authors said the sun is depicted as riding a chariot typically drawn by four horses. This is so, for instance, for Apollo in Greece; Ra in Egypt; Sol in Rome.

In Indian mythology, however, the sun’s chariot is drawn by seven horses.

The authors said many interpretations are available as to what the horses signify – various scriptures assign them the seven colours of the rainbow; the seven vedic metres or prosodies; and the like.

The seventh horse represents dreams, aspirations and the future. It is said that even if the other six horses are injured or exhausted, the seventh horse can take the sun’s chariot to its destination, the article noted.

“In our view, the Union Budget 2023-24 is the seventh horse of the sun,” the article said.

It also said that the year 2023 will probably be characterised by a milder global slowdown than earlier anticipated but the trajectory remains unpredictable.

“In India, domestic consumption and investment stand to benefit from stronger prospects for agricultural and allied activities, strengthening business and consumer confidence, and strong credit growth,” it said.

Supply responses and cost conditions are poised to improve even though inflation witnessed a rebound in January.