Increasing uncertainty from the third wave of the pandemic has forced the next budget to push the fiscal pedal further to support a fragile recovery, allowing the government to budget about 420,000 rupees in capital investment. Due to its nature, it will print a 6.5% budget deficit next year, according to a securities firm’s report.
Budget 2022 will be presented on February 1st. Budget 2021 fixed the budget deficit in 2010 to 6.8% or Rs. 1.205 billion and borrowed Rs 1.2 billion from 9.5% in 2009, but surged in percentage. Given the significant 7.3% reduction in the economy this year.
In May 2020, the government raised the total market borrowing target from 780 million rupees budgeted in February 2020 to 1.2 billion rupees after the pandemic drastically reduced the number of all budgets. The deficit has skyrocketed.
The government is expected to keep pushing the fiscal pedal to support the economy. The budget deficit could be slightly revised up from the 2010 budget of 6.8% to 7.1%, but with rising nominal GDP growth, the government will maintain the deficit glide path announced in the current budget. India said in a note.
Therefore, this year’s consolidated budget deficit will reach 11.1% of GDP (7.1% in the center and 4% in the state), warning that fiscal consolidation will take longer.
He added that the total budget deficit will gradually decline towards 7% of GDP over the next five years.
In 2011, he posted a consolidated deficit of 10.5% of GDP and the center was 6.5%, a slight increase from the 6.3% estimated in the 2021 budget.
According to Bajolia, the government could estimate a budget deficit of 17.5 rupees or 6.5% of GDP in 2011, which could raise spending to more than 41.8 rupees.
He does not anticipate a rapid fiscal consolidation, and the government expects to borrow Rs 1.6 billion next year (up from Rs 1.2 billion this year) and that borrowing will need to continue to rise.
He attributed the higher deficit to an increase in welfare spending and production-related incentives, which will continue to be a major fiscal priority for the new budget.
Prioritizing capital spending will revive fragile growth, as the state is likely to cut capital spending (capital investment) at the expense of losing protected GST compensation funds amid weak private investment. It’s important to be solid.
Still, he hoped the government would maintain a course on providing financial support to the economy, adding that it is still possible to meet the medium-term deficit glide path. In fact, he said, the current larger fiscal promotion to support growth may help the government consolidate its deficits in the coming years.
In terms of revenues, Bajolia expects to exceed budget estimates as nominal growth will boost tax revenues by 2010 and is likely to continue until 2011.
Non-tax revenue may match budget estimates. Large revenue collections will give the government ample room to step on spending pedals.
His optimism comes from the belief that the government is unlikely to increase market borrowing, even though the deficit may be larger than the original budget.
The report also estimates that nominal GDP growth in 2010 was 19.6%, up from the government’s forecast of 17.4% and 13.6% in 2011.