Budget 2022: Govt to go a bit slow on fiscal consolidation
Union Budget has targeted a fiscal deficit target of 6.4 per cent of GDP in 2022-23 as compared to 6.9 per cent in 2021-23, which indicates that the government is going a bit slow on its fiscal consolidation glide path.
- Feb 1, 2022,
- Updated Feb 1, 2022 3:44 PM IST
Union Budget has targeted a fiscal deficit target of 6.4 per cent of GDP in 2022-23 as compared to 6.9 per cent in 2021-23, which indicates that the government is going a bit slow on its fiscal consolidation glide path.
In fact, the fiscal deficit has actually slipped a bit from budgeted 6.8 per cent to revised estimates of 6.9 per cent in 2022-21. This is despite the tax buoyancy in the current year.
Given the fiscal deficit glide path of 4.5 pr cent by 2025-26 , the government has to go for sharp reductions in the next year.
The budgeted fiscal deficit for 2020-21 was actually revised from 3.5 per cent to 9.5 per cent after the pandemic hit the economy. The actual fiscal deficit numbers for 2020-21 stood at 9.2 per cent of GDP.
The target for 2021-22 was a 6.8 per cent of GDP. The finance minister Nirmala Sitharaman last year said that the government will continue with the path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5 per cent of GDP by 2025-2026 with a fairly steady decline over the period.
However, the so-called 'fairly steady decline over the period' is not something the government seems to be following. There are three years left to achieve a fiscal deficit of 4.5 per cent of GDP by 2025-26.
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank says "As expected, the government has refrained from a sharp fiscal consolidation."
"While the fiscal expansion is expected to be pro-growth, the heavy supply is expected to worry the bond markets," she added. Bharadwaj is hinting at higher interest rate or interest cost in the near future as yields on 10-year G sec are expected to move northwards.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services says that by increasing the capex by 35.4 per cent to 7.5 lakh crore, thereby, targeting an effective capex of 10.7 lakh crore, the government has declared that it would be doing the heavy lifting to achieve 8 to 8.5 per cent GDP growth in 2022- 23.
"The government has balanced growth with welfare programs for the poor with Rs. 48000 crore PM Awas scheme and Rs. 60000 crores for tap water for the poor 3.8 lakh households. In brief, it's a non-populist growth-oriented budget," said Vijayakumar.
Mitul Shah, Head of Research at Reliance Securities argues that there is no compromise on investment, which is very much needed to encourage private investment in current uncertain conditions.
"Capital heavy budget would certainly bring faster economic revival along with support from government policies on localisation through incremental PLI, extension for start-ups and lower customs duties. We expect market momentum to continue cheering high growth over the next 1-2 years," Shah said.
Union Budget has targeted a fiscal deficit target of 6.4 per cent of GDP in 2022-23 as compared to 6.9 per cent in 2021-23, which indicates that the government is going a bit slow on its fiscal consolidation glide path.
In fact, the fiscal deficit has actually slipped a bit from budgeted 6.8 per cent to revised estimates of 6.9 per cent in 2022-21. This is despite the tax buoyancy in the current year.
Given the fiscal deficit glide path of 4.5 pr cent by 2025-26 , the government has to go for sharp reductions in the next year.
The budgeted fiscal deficit for 2020-21 was actually revised from 3.5 per cent to 9.5 per cent after the pandemic hit the economy. The actual fiscal deficit numbers for 2020-21 stood at 9.2 per cent of GDP.
The target for 2021-22 was a 6.8 per cent of GDP. The finance minister Nirmala Sitharaman last year said that the government will continue with the path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5 per cent of GDP by 2025-2026 with a fairly steady decline over the period.
However, the so-called 'fairly steady decline over the period' is not something the government seems to be following. There are three years left to achieve a fiscal deficit of 4.5 per cent of GDP by 2025-26.
Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank says "As expected, the government has refrained from a sharp fiscal consolidation."
"While the fiscal expansion is expected to be pro-growth, the heavy supply is expected to worry the bond markets," she added. Bharadwaj is hinting at higher interest rate or interest cost in the near future as yields on 10-year G sec are expected to move northwards.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services says that by increasing the capex by 35.4 per cent to 7.5 lakh crore, thereby, targeting an effective capex of 10.7 lakh crore, the government has declared that it would be doing the heavy lifting to achieve 8 to 8.5 per cent GDP growth in 2022- 23.
"The government has balanced growth with welfare programs for the poor with Rs. 48000 crore PM Awas scheme and Rs. 60000 crores for tap water for the poor 3.8 lakh households. In brief, it's a non-populist growth-oriented budget," said Vijayakumar.
Mitul Shah, Head of Research at Reliance Securities argues that there is no compromise on investment, which is very much needed to encourage private investment in current uncertain conditions.
"Capital heavy budget would certainly bring faster economic revival along with support from government policies on localisation through incremental PLI, extension for start-ups and lower customs duties. We expect market momentum to continue cheering high growth over the next 1-2 years," Shah said.