Economy Watch Monitoring India’s macro-fiscal performance November 2023 85th issue ENTER Contents Foreword: Budgeting for FY25: from Interim to Main Budget 4 1 Growth: PMI indicated an easing of growth in manufacturing and services in October 2023 6 2 Inflation: CPI inflation eased to a four-month low of 4.9% in October 2023 7 3 Fiscal: GoI’s capital expenditure growth stood at 43.1% during 1HFY24 8 4 Comparative trends: IMF projected India’s government debt-GDP ratio at 82% in FY24 10 5 In focus: Economic and fiscal outlook for FY25’s Interim Budget 11 6 Money and finance: bank credit grew by 15.3% in September 2023 17 7 Trade and CAB: merchandise exports and imports growth turned positive in October 2023 19 8 Global growth: IMF projected global growth at 3% in 2023 and 2.9% in 2024 20 9 Index of Aggregate Demand (IAD): grew by 12.2% in September 2023 21 10 Capturing macro-fiscal trends: data appendix 22 Prepared by Macro-fiscal Unit, Tax and Economic Policy Group, EY India D.K. Srivastava, Chief Policy Advisor, EY: dk.srivastava@in.ey.com Muralikrishna Bharadwaj, Senior Manager, EY: muralikrishna.b@in.ey.com Tarrung Kapur, Senior Manager, EY: tarrung.kapur@in.ey.com Ragini Trehan, Senior Manager, EY: ragini.trehan@in.ey.com Home Economy Watch: November 2023 | 3 Highlights 1. In October 2023, both manufacturing and services PMI remained at high levels of 55.5 and 58.5 respectively, although their rates of expansion decelerated. 2. Led by a broad-based improvement in the output of key sub-industries, IIP growth increased to 7.4% in 2QFY24 from 4.8% in 1QFY24. 3. CPI inflation moderated to 4.9% in October 2023 from 5.0% in September 2023, inching closer to the RBI’s 4% target. Core CPI inflation eased for the fourth successive month to 4.3% in October 2023. 4. The WPI reflected a contraction in prices at the wholesale level for the seventh successive month at (-)0.5% in October 2023 as compared to (-)0.3% in September 2023, led by favorable base effects. 5. During 1HFY24, GoI’s gross tax revenues (GTR) showed a growth of 16.3%, with growth in direct taxes at 25.4% and that in indirect taxes at 6.5%. 6. GoI’s total expenditure grew by 16.2% during 1HFY24, with growth in capital expenditure at 43.1% and that in revenue expenditure at 10%. 7. During 1HFY24, GoI’s fiscal and revenue deficits, as a proportion of their annual BE, stood at 39.3% and 26.6%, respectively. 8. Growth in gross bank credit increased to a three-month high of 15.3% in September 2023 from 14.9% in August 2023. 9. Growth in merchandise exports and imports turned positive at 6.2% and 12.3% in October 2023 after showing a contraction for ten successive months, partly due to favorable base effect. 10. Merchandise trade deficit surged to an unprecedented high of US$31.5 billion in October 2023 from a five-month low of US$19.4 billion in September 2023. 11. Net FDIs turned positive in September 2023 with inflows amounting to US$1.5 billion as compared to outflows of US$2.8 billion in August 2023. 12. From a 13-month high level of US$92.2/bbl. in September 2023, global crude price moderated to US$89.1/bbl. in October 2023 as global supply concerns eased with an increase in the OPEC output. However, the ongoing geopolitical conflict in the Middle East poses significant upside risks to global crude prices in the near term. 13. The IMF has projected global growth at 3% in 2023, with India’s FY24 growth forecasted at 6.3%. Economy Watch: November 2023 | 4 Foreword Budgeting for FY25: from interim to main budget The union government will present an Interim Budget for FY25 on 1 February 2024. The main Budget would be presented after the general elections in May 2024. In 2019, when a similar situation had arisen, the main Budget was presented in the first week of July. The Interim Budget, also called a Vote on Account, enables undertaking of expenditures at the beginning of the next fiscal year until the main Budget is presented. It is not used for the initiation of any major policy changes. The Interim Budget therefore is of interest to the extent as it provides an assessment of the economy and its fiscal health. One key variable of interest would be the achieved improvement in indicators of fiscal imbalance, such as fiscal and revenue deficits and government debt relative to GDP after their sharp departures in the COVID-affected year of FY21. Using this assessment and considering more up-to-date information, the main Budget will provide an occasion to initiate policy reforms in a longer-term perspective. As per the National Statistical Organization (NSO), real and