You are here: Home » Economy & Policy » News
Business Standard

Economy needs more hand-holding, fiscal correction can wait: Report

The successive waves of the pandemic has made it more difficult to reduce government debt as a share of GDP in the medium-term, said Goldman Sachs

Topics
India economy | economy | indian government

Press Trust of India  |  Mumbai 

economy
Illustration by Binay Sinha

Warning that any sudden and sharp fiscal consolidation steps can throttle the nascent and uneven recovery of the Indian economy, a Wall Street brokerage has said the Budget should instead focus on boosting overall demand, from rural consumption in particular, and invest more in infrastructure.

The successive waves of the pandemic has made it more difficult to reduce government debt as a share of GDP in the medium-term, said Goldman Sachs in a pre-Budget note.

It thus pencilled in a gradual fiscal consolidation with FY23 falling by 50 basis points to 6.3 per cent from 6.8 per cent in FY22, and set a target of bringing it down to 4.5 per cent by FY26.

The brokerage believes that even though allocation for COVID related expenses will come down, the government will have to continue to focus on welfare spending and also expects capex to increase 12 per cent.

But the higher spending will most likely be financed by higher tax revenue in FY23 and deferred asset sales from the current year, helping reduce the deficit.

It also sees the general government fiscal deficit falling to 9.3 per cent of GDP in FY23 from 10.1 per cent in FY22 on the back of stronger nominal GDP growth.

If the Budget removes capital gains tax and withholding tax on foreign bond investments in the country, India will likely be included in the global bond index by Q4 of 2022 and this can help the country attract an additional USD 30 billion inflows in 2023, which again will lead to lower deficit.

Gross tax collections in the first eight months of FY22 rose to 70 per cent of budget estimates which is the highest in the last 10 years. Direct taxes have grown 66 per cent on-year, led by income and corporate tax growth while indirect taxes have grown 39 per cent driven by buoyant GST and excise duties on fuel prices.

The report expects gross tax revenue to overshoot budget estimates by about 1.1 per cent of GDP in FY22 and non-tax revenue to be higher by 0.1 per cent of GDP driven by increased dividends from the RBI and higher deferred payments from telcos.

The report expects the divestment shortfall to be around 0.6 per cent of GDP and taking all this into consideration, total receipts to be higher by only 20 basis points of GDP in FY22 over budget estimate.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Fri, January 28 2022. 20:27 IST
RECOMMENDED FOR YOU
.