How will the Budget 2023 address the global recession should it impact India?

People all around the world have personally witnessed unimaginable incidents that have had lasting effects. The COVID-19 crisis, Russia's invasion of Ukraine, and other factors have put people in an extremely vulnerable position. People worldwide are worn out and dealing with the challenges brought on by increased living expenses. Perhaps, unsurprisingly the gloom is being reflected at home.

The world economy was devastated by persistent inflation that reached high records across several nations following COVID-19. Leading central banks have aggressively raised interest rates to control prices, which has resulted in a significant decline in global GDP and the risk of economic recession.

There was a lot of speculation about a recession a few months back, but the topic has changed dramatically. India's economy will always be affected by recessions, but the question is how deeply.

In this write-up, we have covered an assessment of the global economy. So, begin with the most trending question going around everybody's mind, will there be a recession? The answer to this question is covered below. A global recession will likely occur in the near future.

According to FM Sitharaman, the focus of Budget 2023 would be on growth and inflation issues

Inflation issues must be addressed first, according to FM Sitharaman. The Reserve Bank of India raised interest rates to reduce demand over the majority of 2022 as a result of inflation exceeding the 6% tolerance limit.

In an announcement made on Tuesday, Union Finance Minister Nirmala Sitharaman expressed confidence about India's both relative and absolute growth performance in the upcoming years. She stated that the Union budget needs to be "carefully made" to sustain development and control inflation. She mentioned that the rising cost of electricity in the near future is the reason behind the majority of issues in India.

Sitharaman stated that India was closely monitoring the situation as countries across the world battled increasing inflation and lagging economic growth as a result of tightening monetary policy and a decline in global demand.

Eshwar Prasad, a renowned economist, and she were having a fireside talk at the Brookings Institute when she made her remarks. The minister is attending the annual meetings of the World Bank and International Monetary Fund in Washington, D.C.

Prioritize the 2023 budget

The minister stated that inflation worries must be addressed first in the forthcoming budget in 2023. Inflation has hovered above the tolerance limit of 6 percent for most of 2022, prompting the Reserve Bank of India to raise interest rates to dampen demand.  

In addition, the conflict between Russia and Ukraine has skyrocketed oil and gas prices and sparked worries that economic recovery might slow down in India. Due to the rupee's decline, problems got worse, thus leading to an increase in import prices in return. Approximately half of India's gas demands and 85% of its oil needs are being met by imports.

It may be difficult to provide information regarding the future budget at this time since it is too early. Nevertheless, growth will remain the priority in general. Even while I address the worries that inflation brings to mind. Therefore, worries about inflation must be addressed. However, the obvious question would be how to manage growth, according to Sitharaman.

On February 1 of the following year, the minister is expected to deliver the annual budget for the fiscal year commencing April 2023.

The previous two government budgets prioritized simultaneous growth while maintaining a roadmap for the budgetary deficit. The minister said that although borrowing by the federal government and the states increased in 2020 and 2021 (to pay for GST compensation), the government has been open about its deficit. According to the Centre, the budget deficit would drop from 6.7% of GDP in FY22 to 6.4% in FY23.

According to the central bank, the GDP growth in India will accelerate to 7.2% in the current fiscal from 6.2% previously projected. Several other rating agencies have lowered their projections for economic growth in India due to tightening global financial conditions, geopolitical tensions, and decreased exports.

"We are attentively observing and making sure that pressure does not be passed on to the people," Sitharaman said in response. Sitharaman was pointing to the stress on the international level that affects India's access to food, fertiliser, and energy. In order to protect the average person from the effects of rising fuel costs, the excise charge on petrol was reduced. That is one method by which we make sure that the weaker groups are not harmed, she added.

Significant output loss in 2023

If the epidemic hadn't occurred, the global output would have increased by 23% since 2016. But as of now, just 17% growth is predicted. Real GDP will remain below that of the pre-pandemic level due to the global recession, which is predicted to cost the globe more than $17 trillion, or about 20% of gross revenues.

According to a United Nations Conference on Trade and Development (UNCTAD) research, Russia, Indonesia, India, the United Kingdom, and Germany are among the nations that may be most responsible for this global production loss.

India might have an output decline of 7.8% in 2023, compared to losses in the Euro area of 5.1%, China of 5.7%, the United Kingdom of 6.8%, and Russia of 12.6%. The global markets are now unpredictable as a result of rising interest rates, weakening currencies, growing governmental debts, and escalating food and fuel rates.

Raising interest rates to combat inflation

A recent World Bank analysis suggests that hiking interest rates by central banks worldwide to combat inflation may not be a wise idea. In addition to the recession, this may trigger several financial crises.

In the wake of more countries falling into recession, global growth is expected to slow further. David Malpass, President of the World Bank Group, expressed deep concern that these trends will persist, resulting in devastating consequences for emerging economies and developing markets.

Global economic growth is slowed sharply, and it's likely to slow even further as more countries enter a recession. The World Bank Group President David Malpass expressed deep concern that these trends will continue, resulting in long-lasting impacts that will be devastating for those living in emerging markets and developing economies.

Increasing public debt

A recession might happen in the coming year, i.e., 2023, according to the International Monetary Fund (IMF). Kristalina Georgieva, MD of the IMF, predicted that until 2026, global economic growth might slow by $4 trillion. It's more likely that things will grow worse than better, she added.

All regions are expected to be adversely affected, but alarms are sounding the loudest for emerging nations since several of them are on the verge of collapsing on their debt. Countries with lower middle incomes spend more money on debt repayments. The nations with the largest share of revenue needed to cover their national debt are Somalia, Sri Lanka, Angola, Gabon, and Laos.

Declining currency values

Nearly $379 billion has been spent by developing countries to cushion weakening currencies, roughly double the amount of SDRs created by the IMF. Using a basket of the world's five leading currencies, SDRs are valued according to their value in US dollars, euros, Chinese yuan, Japanese yen, and British pounds.

Estimates indicate that the rising interest rates in advanced countries are having a particularly negative impact on the most disadvantaged populations. The UNCTAD reports that close to a third of the nearly 90 emerging countries have seen currency depreciation of at least 10% this year.

Costly food and fuel

The lives of average people are significantly affected by two factors: food and energy. The cost of food and energy has significantly increased in 2022. From April to October 2022, the price of crude oil in the Indian basket averaged $102.14 per barrel, while the food price index reached a career-high of 125.7 in 2021 and reached 146.94 by September. During the previous financial year, crude oil prices were $44.82 per barrel and $79.18 in 2021-22.

India's GDP would increase by 6.5-7.1% in FY23, according to Deloitte India

The current economy is fragile and prone, according to the multinational consultancy company, because of the weak rupee, rising inflation, and the global recession.

India's GDP is anticipated to rise by 6.5-7.1% in the fiscal year 2022–2023 despite being impacted by the global downturn and increasing inflation for many months (April 2022 to March 2023). India's GDP increased by 8.7% in FY22.

Inflation continues to be the most acute issue facing policymakers, according to the most recent research by Deloitte India. Since April 2022, India's headline inflation rate has increased by 1.9 percentage points. Over the previous nine months, it has continued to be over the Reserve Bank of India's (RBI) tolerance level of 4 (+/-2)%. India's economy is anticipated to continue to grow at the highest rate in the world in FY23, despite lower revisions.

Predictions from international organizations like Moody's and the IMF are identical with Deloitte India's projections. Due to the depreciating currency and increasing fuel prices, the US-based global rating agency Moody's Investors Service this month reduced India's GDP predictions from 7.7% to 7%. Due to a weaker-than-anticipated rebound in the second quarter and muted external demand, the International Monetary Fund (IMF) has lowered India's GDP growth prediction for 2022 by 1.4 percentage points since April to 6.8%.

In contrast, the Deloitte India research warns that in a few months, the situation might get worse everywhere, even in India. The soaring currency has increased import costs for the nation, and policymakers will be under a lot of pressure from concerns about a global slowdown and a potential recession in certain industrialized nations.

"The primary reasons behind the increase in India are suffering badly from the never-ending story of global economic concerns. The present economic climate is so unpredictable that it is doubtful that a consistent view would emerge if one is searching for assurances from the most recent data releases, according to research by Deloitte India.

According to the consulting company, assuming economic fundamentals both domestically and internationally improve, the country's GDP growth for FY24 might stay between 5.5 and 6.1%. "The most eagerly anticipated signal for a persistent drive for investment may be continued demand growth. Due to declining global demand and constrained resources, exports and government expenditure may not sustain growth as much, according to Rumki Majumdar, the economist at Deloitte India.

In the meanwhile, Morgan Stanley, a significant global financial institution, predicted that thanks to favorable domestic policies and a focus on expanding investment and jobs, India will overtake the US and China as the third-largest economy by 2027. According to a survey released this month, this will increase its GDP from its present level of $3.4 trillion to $8.5 trillion during the following ten years.

Although India's economy is now where China's was in 2007, due to its younger working-age population (India's median age is 11 years lower than China's), which is anticipated to eventually contribute to its GDP. Morgan Staley predicts that during the next ten years, the economies of China and India will both rise on average by 3.6% and 6.5%, respectively. The fact that India is investing extensively in expanding its digital infrastructure, including programmes like Aadhaar, is more favourable, according to Morgan Stanley.

“No chance of a recession in India; 6%-7% economic growth expected in the upcoming fiscal year: Rajiv Kumar”

“A synchronised decline in the U.S., Europe, Japan, and China may in the next months plunge the whole global economy into a crisis, according to the former vice-chairman of Niti Aayog.”

Rajiv Kumar, a former vice-chairman of Niti Aayog, has stated that despite possible effects from uncertain global conditions, India's economy will still develop at a rate of 6% to 7% in the upcoming fiscal year of 2023–2024.

The global economy may enter a recession in the upcoming months, according to Mr. Kumar, who also noted that there is a coherent slowdown occurring in China, the U.S., Europe, Japan, and other countries.

Additionally, despite how the global economy may negatively affect our growth, India's annual growth will still be at 6-7% in 2023-2024, so there is no such prospect of a recession.

In light of the worsening international climate, the World Bank on October 6 estimated a 6.5% growth rate for the Indian economy for 2022–2023—a reduction of one percentage point from its June 2022 predictions. The IMF predicted a growth rate of 6.8% in 2022, down from 8.7% in 2021.

According to Kristalina Georgieva, head of the IMF, the global economy is evolving from a relatively predictable to a more unpredictable one.

In response to a question on the current high rate of inflation, Mr. Kumar stated that retail inflation will likely stay around 6–7% for some time.

"I expect it is likely to reach its top and then begin to decrease," he stated in his following statement.

Mr. Kumar noted that a lot relies on the price of oil globally, which may keep rising due to the ongoing situation in Ukraine.

Meanwhile, he said, "domestic causes of inflation will slow down otherwise." Retail inflation significantly reduced to 6.7% in October, signaling a relaxation of the pricing situation, while the wholesale price index dropped to a 19-month low, mostly as a result of low food prices.

The legislated inflation target for the central bank is 4% with 2% upside and downside bottlenecks. When asked about the effects of a falling Indian rupee on the average Indian, the former vice chairman of Niti Aayog stated that few imported items or services are included in the average Indian's consumption.

Mr. Kumar asserts that a rupee that is close to its genuine worth is far better for the economy than one that has appreciated and that a depreciated rupee doesn't carry many potential risks in the long term.

Concerning India's growing trade surplus, Kumar stated that the government has to put a significant policy focus on this sector to increase its exports of both commodities and services. This is evident from the October export growth's negative trend.

"State-specific export promotion plans must now be developed. Because it would be completely ridiculous to have a unified export promotion policy for the entire country, "he said.

He continued by declaring that Tamil Nadu is a coastline state and that Punjab is a doubly landlocked state with a long history of trade. The fact that, for instance, both of those administrations have the same policies is irrelevant, he said.

After a break of approximately two years, India's exports returned to the red in October, falling significantly over time by 16.65% to $29.78 billion, mostly as a result of a downturn in global demand, even as the country's trade deficit increased to $26.91 billion.

Due to a rise in the inbound shipments of crude oil and other basic products including cotton, fertilizer, and equipment, imports during the reviewed month increased by roughly 6% to $56.69 billion.

In response to a query on certain states' transformation to the OPS, Mr. Kumar stated, "That is a step backward. and that shouldn't be taken, in my opinion." In his opinion, certain opposition parties support it due to populist policies.

Mr. Kumar stated, "I believe the Indian economy, the working class, and middle class are maturing and capable of managing their pension funds and making use of the new pension system, which gives a lot more options than the old pension scheme.

In a decision made by the Punjab cabinet on Friday, the previous pension plan, which was discontinued in 2004, was reinstated.