With a third of the world hovering on the brink of a recession after two pandemic years, India's economy remains a comparatively bright spot in 2023.
GDP targets for the year have been moderated slightly, but India is expected to remain the fastest-growing major economy in the world for a second year. Growth is likely to be in the range of 65 to 6.5%, which is impressive by any measure.
Additionally, inflation is coming off, energy prices have cooled off, the country continues to receive strong investment flows and consumer spending is inching up.
India is also expectedly benefiting from the 'China-plus-one' strategy of global manufacturing, with the likes of Apple looking to scale up capacity in the country as it diversifies supply chains away from China.
At the recently-concluded World Economic Forum in Davos, the one-line message from Gita Gopinath, deputy managing director at IMF (International Monetary Fund), to politicians was to use "fiscal policy to provide support to the most vulnerable in society".
Despite impressive headline GDP forecasts, unemployment in India remains high - at over 10% in cities, according to December 2022 data from the Centre for Monitoring the Indian Economy. And inequality has worsened.
Recent findings by Oxfam, the British charity, that India's top 1% owned 40% of its wealth have been subject to a great deal of scrutiny, with many pointing to flaws in its calculation methodology.
But a raft of other data sets - such as shrinking demand for affordable homes, greater demand for luxury cars vis-vis two wheelers, or for premium consumer goods over cheaper alternatives — points to a K-shaped recovery post pandemic, where the rich have become wealthier, while the poor are worse off.
The BBC traveled across numerous villages in West Bengal's Purulia district where people are caught in a political crossfire between the federal and state government. Approximately US$330 million in wages under the government's rural jobs guarantee program, a crucial social buffer, have been delayed for more than a year.
Sundara and Aditya Sardar, a couple who spent four months digging a pond outside their village under the jobs scheme — Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), told the BBC they'd run up debts to pay for food because of the wage delays and taken their son out of school.
"The central government has blocked off payments to 10
million workers in West Bengal for over a year. In times of economic distress
and high unemployment, this is inhumane and, as the Supreme Court has said in a
MGNREGS case ruling on delayed payments, it is forced labor," said Nikhil
Dey, an activist.
These delays, while most acute in West Bengal, aren't limited to the state
alone. In all, the government owes over US$500 millio in unpaid dues to workers
under the scheme across the country.
Economist Jean Dreze blames this situation on the government's bid to contain
expenditure across social security schemes and allow the vicious cycle of
annual under-allocation and delays in wages to continue, particularly for
MGNREGS.
"There was a time when the expenditure on the jobs program had risen to 1%
of GDP. It is now less than half a percent. I would be quite happy if it came
back to 1% in this budget, with much bigger efforts to curb corruption in the
scheme," said Dreze.
Outlays to the rural jobs scheme shrunk last year and lower spendings were
budgeted for food and fertilizer subsidies, although supplementary allocations
were made to extend the Covid-era emergency support schemes and cushion the
impact of global geopolitical shocks.
Given the Modi government's precarious fiscal position, the finance minister has a tough balancing act to do; between prioritizing social protection to the poor and growth-supportive capital expenditure on one hand and reducing the budget deficit on the other.
India's budgeted fiscal deficit — the gap between what the government earns and spends — is at 6.4%, as opposed to an average of 4% to 4.5% over the last decade.
And with the government's gross indebtedness doubling over the last four years, subsidies on food and fertilizers could be cut by a quarter, a Reuters poll of economists found. The government has already discontinued a Covid-era free food program.
A widening current account deficit - the difference between what the government earns from exports and spends on imports - poses another significant challenge.
"India's economy is affected by external demand, sentiment of global investors, and regional trade dynamics. These are not flashing bright green right now," DBS Group Research chief economist Taimur Baig and data analyst Daisy Sharma said in a recent report.
Demand for Indian exports is likely to falter as the West enters a recession. Meanwhile, tighter financial conditions domestically are expected to keep domestic demand muted. India's central bank is broadly expected to hike rates further in February before pausing for the rest of the year.
Modi's government faces formidable economic challenges this year despite India's outperformance globally. And it will need to undertake continued structural reforms beyond budget announcements to make increasingly scarce money work better.
