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HomeEconomicsAhead of Budget, D-St hopes for FY23 fiscal deficit of around 6.25%...

Ahead of Budget, D-St hopes for FY23 fiscal deficit of around 6.25% of GDP : Shivpurinews.in

NEW DELHI: When Finance Minister Nirmala Sitharaman details the Union Budget for the next financial year on February 1, one of the most keenly awaited announcements will be the fiscal deficit that the government is aiming for as the degree of spending the centre plans is key to ensuring a sustainable revival from the scars of the COVID-19 pandemic.
Even as increased government expenditure is seen as a necessary condition for the economy to firmly regain its footing, the Indian equity market would find reason for cheer if the government were to rein in its fiscal deficit target at 6.25 per cent of GDP in 2022-23 (Apr-Mar), according to the median of an ETMarkets poll.

The poll includes fiscal deficit projections of nine entities, including leading brokerages and banks.

The consensus view in the market is that the government will comfortably achieve the fiscal deficit target of 6.8 per cent of GDP set for the current financial year because of healthy tax collections and a higher-than-expected growth in nominal GDP.

“Revenue collection has been robust; we expect it to exceed the budgeted target by 0.3-0.5 per cent of GDP on strong tax collection, higher dividend inflows and partial success in meeting divestment targets. We expect revenue collection to be high, despite the government’s decision to cut excise duty on retail fuel products in early November,” economists from Standard Chartered Bank wrote.

With the pandemic dealing a body blow to economic growth and hence the government’s revenue streams, the centre was compelled to rewrite its earlier fiscal targets, under which the Budget deficit was projected to ease to 3.1 per cent of GDP by the next financial year.

In February 2021, Sitharaman said that the government would now aim to lower the fiscal deficit target to 4.5 per cent of GDP only by 2025-26 (April-March).
With the rapid spread of the Omicron strain of the coronavirus and attendant curbs on activity posing a fresh risk to growth, the government has to strike a delicate balance between fiscal conservatism and a spending push

“While a slower pace of expenditure increase would allow the government to target a narrower fiscal deficit in FY23 (say 5.5 per cent of GDP), we think it is likely to remain growth-supportive rather than opt for aggressive fiscal consolidation,” Standard Chartered Bank said.

However, rather than looking at the deficit numbers in isolation, markets are likely to instead focus on the areas in which the government is likely to loosen its purse strings the most, especially as a higher nominal GDP projection for the next year is seen statistically reining in the fiscal deficit ratio.

“We believe markets will be looking for a demand supporting budget rather than be fixated on the deficit numbers,” JM Financial’s Managing Director and Chief Strategist Dhananjay Sinha said.

“…While the actual fiscal deficit/GDP ratio for this year is estimated to be higher at 7 per cent vs the 6.8 per cent budget estimate due to the additional spending, the actual ratio may turn out lower due to the higher GDP number. Based on the guidance of glide path towards 4.6 per cent fiscal deficit/GDP by 2026, we are penciling for a 6.4 per cent fiscal deficit target for FY23 which converts into an absolute number of Rs 16.8 trillion or 8.2 per cent higher than the estimated Rs 15.5 trillion in FY22.”

The domestic equity market scaled record highs in 2021, with BSE Sensex and NSE Nifty each adding more than 20 per cent as economic activity showed a firm rebound after registering its worst-ever contraction in the previous financial year and as corporate earnings showed firm momentum.


In order to kick-start a virtuous cycle of growth what is crucially necessary is for capital expenditure to pick up and that is where the government has some ground to cover.

Latest data show that the centre has spent around 50 per cent of the planned capital expenditure in the first eight months of 2021 as against close to 60 per cent over the same period a year ago.

Government’s final consumption expenditure and private final consumption expenditure, both key drivers of growth, have been lagging, which is a cause for worry when it comes to longer term growth prospects.

“A sum of Rs 5.54 lakh (for capital expenditure) was committed in the last budget, which is 26 per cent increase from 4.39 lakh crore of FY21. We expect this to increase by another ~25 per cent to reach Rs 7.0 lakh crore for FY23E,” ICICI Direct Research’s Head Pankaj Pandey said.

“This along with other financial funding options could increase the government’s financing capability substantially to support NIP (National Infrastructure Pipeline).”

Under the pipeline, the government envisages the completion of projects worth Rs 111 lakh crore from 2020-25; a task that would require annual expenditure of over Rs 20 lakh crore every year – equivalent to the centre’s total annual receipts, Pandey said.

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