India saw a broad-based recovery this fiscal for the first time after the onset of the pandemic in 2020 as services caught up with manufacturing. But the Russia-Ukraine conflict, unexpected weather disruptions and accompanying surge in inflation have marred the recovery with ramifications for the fiscal math as the government made efforts to ease the pain.

Going into the next fiscal, uncertainties about global economic outlook and geopolitical situation are mounting. In fact, the only certainty as of now is a global growth slowdown as major central banks have hiked rates aggressively. This will have spillover effects on Indian economy as well. Tighter domestic financial conditions, too, are expected to weigh on domestic demand next fiscal. Once again, the budget will have to do a balancing act between supporting growth and following the fiscal consolidation path.

This will be the fourth and the last full budget from the BJP-led National Democratic Alliance before the 2024 elections. And the environment is equally challenging and uncertain as the previous budget.

The budgetary assumptions had become outdated even before this fiscal year started.

The Russia-Ukraine conflict lifted commodity and crude prices and bloated the subsidy bill. But higher inflation and consequently ‘higher than assumed’ nominal gross domestic product (GDP) growth improved the tax collections.

Consequently, the fiscal year is likely to end with the fiscal deficit close to 6.4% of GDP – the budget target.