By Siddhi Nayak and Swati Bhat
MUMBAI, Feb 17 (Reuters) - The Indian budget's emphasis
on capital expenditure is expected to encourage private
investment, strengthen job creation and raise the country's
potential growth, the Reserve Bank of India said in its monthly
bulletin released on Friday.
Domestic consumption and investment stand to benefit from
better prospects for agricultural and related activities,
strengthening business, consumer confidence and credit growth,
the RBI wrote in its bulletin.
India on Feb. 1 announced a 45 trillion rupees ($543.48
billion) expenditure for the next fiscal year starting April 1
to boost economic growth, while aiming to lower the fiscal
deficit before elections happen next year.
The government is targeting a fiscal deficit of 5.9% of GDP
for 2023-24, compared with 6.4% for the current fiscal year.
India expects 6%-6.8% economic growth in 2023-24, slightly lower
than the 7% expected in the current fiscal year.
The government's promises kept on consolidation and capital
expenditure as well as the tax changes proposed in the budget
will put at least 350 billion rupees in the hands of households,
the RBI wrote.
"Supply responses and cost conditions are poised to improve
even though inflation witnessed a rebound in January," it added.
India's annual retail inflation rate rose to 6.52% in
January from 5.72% in December, rising above the central bank's
upper threshold for the first time in three months, as food
prices increased.
According to the bulletin, the saving on taxes will boost
spending by households on consumption. India's real GDP growth
would get a boost of 15 basis points in 2023-24 from tax
reductions alone, it stated.
Furthermore, the increase in capital expenditure allocation
will generate additional output of 10.3 trillion during 2023-27,
according to the bulletin.
Fiscal consolidation, on the other hand, can free up
productive resources for the private sector and also contribute
to lowering the cost of capital, the RBI said.
Overall, the fiscal consolidation and reduction of debt is
expected to bring down inflation in the medium run, with a
consequent fall in volatility and the country's risk premium,
ushering in a "virtuous cycle," the RBI added.
There is also likely to be a faster consolidation of
government debt to 54.3% of GDP by 2027-28, the bulletin added.
($1 = 82.8000 Indian rupees)
(Reporting by Swati Bhat and Siddhi Nayak)
+91-22-69217812; Reuters Messaging:
swati.bhat.thomsonreuters.com@reuters.net))
