India budget gap could narrow to 6.3% next year, SBI

India’s biggest lender, i.e. State Bank of India, has provided an estimation of a 6.3% reduction in this country’s budget deficit in the upcoming financial year. Soumya Kanti Ghosh, an economist of SBI, predicts a gradual consolidation of this fiscal deficit to complement the slow recovery of India’s economy.

He assumes that expenditure will grow by 8% or Rs. 38 lakh crores in FY 2023, and receipts will also increase by 10.8%. This will result in a fiscal deficit of about Rs. 16.5 lakh crore or 6.3% of India’s GDP in the fiscal year of 2023.

He also mentioned that India is on track to meet its budget deficit this year, even after considering the additional spending announced in December 2021. The Indian Government’s fiscal deficit is set to be 6.8% or Rs. 15.06 lakh crore of its GDP. However, as of November 2021, this deficit stands at Rs. 6.96 trillion.

This gap is now narrower than what it was in the previous year. However, it is still higher than what this country witnessed in the pre-pandemic years.

The LIC Factor

Considering the current fiscal deficit, Mr. Ghosh also expects that the disinvestment of the LIC of India will play a part here. If this IPO goes through in this fiscal year of 2021-22, the Indian Government will have a cash balance of Rs. 3 lakh crore. Adding this will also play a part in reducing this budget deficit without resorting to market borrowings.

However, the cloud surrounding LIC’s IPO is yet to clear, as various Government organizations associated with it are working to make it a seamless process.

The Budget Expectations

This SBI report estimates that the budget for FY 2023 is likely to reduce this fiscal consolidation further. Moreover, Mr. Ghosh believes it will remain limited to 30 to 40 bps of the current scenario. The primary objective of this budget is to curate an environment that will focus on growth. Furthermore, the higher weightage will be on short-term stabilization policy instead of planning something long-term.

Mr. Ghosh also thinks that introducing any new tax or reforming the current ones will have an effect on this situation.

The net market borrowing of the Indian Government is likely to be about Rs. 8.2 lakh crore. The repayment is likely to be around Rs. 3.8 lakh crore; hence, the gross borrowing will touch the Rs. 12 lakh crore mark.

This report also promotes the idea of supporting MSMEs, as this segment contributes significantly to India’s GDP. Additionally, considering the ongoing pandemic, the Government should think about exempting GST from it.

Parting Thoughts

This report from one of SBI’s leading economists provides an outline of India’s current fiscal deficit situation. Additionally, it gives an idea of what India’s leading bank expects from the upcoming budget.

Nonetheless, the final budget of 2022 will give a better idea of which path the Indian Government will take.

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Source: Bloomberg Quint

Frequently Asked Questions

1. What are other highlights of this report?

This report expects Rs. 15 trillion from this country’s planned inclusion in bond indexes. Also, the GDP growth is likely to be 8% next year compared to 9.2% of the current year.

2. When will India’s finance minister present the next budget?

India’s finance minister will present the next budget on 1 February 2022.

3. When will the LIC IPO be going live?

There is no news on the timeline of LIC’s IPO.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.