Finance Minister Nirmala Sitharaman presented the Union Budget 2023-24 on a positive roadmap with fiscal deficit for 2023-24 at 5.9 percent of GDP well below the 6.4% budgeted for 2022-23. The fiscal deficit for 2021-22 was 6.7%, which was lower than the revised budget estimates of 6.9%. With an aim to reduce its fiscal deficit to less than 6% of GDP for the first time since the fiscal year ended March 2020, while increasing capital spending to support growth.

Fiscal deficit is the difference between a government's expenditures and revenues when the former is greater than the latter. The lower fiscal deficit target for 2023-24 was anticipated because a possible moderation in global commodity prices and less spending on subsidies as the government withdraws pandemic-related benefits are likely to make room for the lower fiscal deficit target while keeping to guardrail.

Union Budget 2023 capital investment outlay has been increased by 33% to ₹10 lakh crore ($122 Bn), accounting for 3.3 percent of GDP. The total budget size for FY24 (total expenditure) will be ₹45 lakh crores ($550 Bn), up from INR 41 lakh crores ($500 Bn). While maintaining its focus on capital expenditure, which has been increased to Rs 10 lakh crores ($122 Bn) for FY24 from ₹7.3 lakh crores ($89 Bn) and ₹7.5 lakh crores ($92 Bn) in FY23. This includes the continuation of 50-year, interest-free loans to states for capital expenditures. For FY24, this support has been increased by ₹30,000 crore ($37 Bn) to ₹1.3 lakh crores ($16 Bn). States will be permitted to run a fiscal deficit of 3.5% of GSDP, with 0.5% set aside for power sector reforms.

During the Covid era, India's monetary and fiscal policies allowed it to far exceed the globally acceptable fiscal deficit levels. It also suspended fiscal deficit limits set under the FRBM Act and stated its intention to gradually reduce the budget gap to 4.5% by 2025-26, as opposed to significantly lower limits under the Act.

However, the government now has some fiscal wiggle room because the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) has been merged with the National Food Securities Act, resulting in a lower food and fertiliser subsidy bill. Lower oil prices, cheaper fertilisers, softer food prices, and softer commodity prices in the coming fiscal year will also give the government more leeway. The Union Budget 2023 budget has doubled down on the government's strategy to spur economic investment. Given that states account for a sizable portion of public investments, this is a positive sign for investment activity.

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