The Narendra Modi government is focusing on maintaining macroeconomic stability amid evolving economic dynamics, Morgan Stanley's Managing Director Ridham Desai said, analysing the 2024 Union Budget presented on Tuesday.
The budget's fiscal deficit target of 4.9% of GDP, lower than anticipated, signals a commitment to fiscal prudence while allowing room for growth-oriented expenditures, he said.
Desai emphasised the government's shift towards encouraging private sector participation, following its substantial role in stabilising the economy during the pandemic. He underscored the importance of controlling inflation as a crucial element in sustaining economic growth and ensuring stability, particularly with the government's stance as inflation hawks.
While rural consumption appears robust, the budget did not introduce specific measures aimed at boosting this segment further, Desai noted. The government's focus on maintaining macro stability might limit direct populist spending, aligning with its broader economic strategy, he said.
Addressing concerns about fiscal prudence potentially constraining expenditure, Desai explained that government expenditure tends to be counter-cyclical, stepping in during economic downturns and scaling back as private sector activity rebounds. While capital expenditure by the government may reduce progressively in the coming years, certain fixed expenditures, like salaries and subsidies, may remain resilient, he said.
Desai expressed optimism on increase in Mudra loans limit. There are less chances of default and these loans have potential to stimulate economic activity, especially in sectors where traditional banking support may be limited, he said.
He reaffirmed a positive outlook on India's economic trajectory, supported by strong policy frameworks and a conducive environment for private sector growth.
India's ongoing bull market reflects investor confidence in the country's economic resilience and policy direction, underpinned by the government's strategic shifts towards macroeconomic stability and private sector-led growth initiatives, Desai said.
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