The nominal GDP growth projection of 14.4 per cent for 2021-22 in the Union Budget can turn out to be an underestimate, which can provide the government the room for higher spending, the State Bank of India (SBI) said in a report.
In the Budget, presented by Finance Minister Nirmala Sitharaman on Monday, the nominal GDP for FY22 has been pegged at Rs 222.9 lakh crore, a 14.4 per cent growth over FY21. Considering a conservative 10 per cent real GDP growth target, this would translate into an inflation of around 4.4 per cent, the SBI report said.
"We believe, if growth comes back riding on the spending prowess, the nominal GDP projection may be an underestimate. This may thus provide even some more additional spending room for the government," it said.
The Finance Minister had pegged government's expenditure in 2021-22 at Rs 34.83 lakh crore, of which Rs 5.54 lakh crore is capital expenditure.
The report also praised government's move to increase foreign direct investment limit in insurance companies to 74 per cent in the Budget, saying it will help in increasing insurance penetration in the country, which is currently at 3.76 per cent.
"The COVID-19 pandemic has shown that further penetration of insurance in India is needed with a significant change in behavioural habits of individuals towards more insurance products and for that capital infusion is required. The move is need of the hour...," the report added.
SBI Chairman Dinesh Khara said the Budget has achieved a balanced demand stimulus to correct the output gap in the backdrop of COVID-19 pandemic.
"The financing aspect of the Budget and resource mobilisation was matter of concern for all. The Budget has walked the thin line quite well and has ensured that economic revival is not hampered by lack of resources at the same time meeting the shares of the states as recommended by 15th Finance Commission," Khara added.
He said the Budget has addressed the demand side by expanding the role of the government through a sharp increase of 34.5 per cent in capital expenditure over Budget Estimates of 2020-2021.
"One of the cornerstone of this Budget is fiscal numbers that are transparent and has the potential to surprise us on the upside. In principle, the Budget has rationalised the off-balance sheet borrowings and headline fiscal deficit numbers, which will overtly please markets and even rating agencies," Khara said.
The status quo on taxes, along with the increase in expenditure, will bolster market sentiments, he added.