As I write this article, markets in India are euphoric, up more than 4.5 per cent. The biggest positive surprise for the markets has been no attempt to raise taxes by the government. Markets were expecting at the minimum some type of surcharge on the more affluent. While a big positive, the flip side of no tax has been no increase in total expenditure (less than 1 per cent) by the government, despite budgeting nominal gross domestic product (GDP) growth of 14.4 per cent for FY22. The government will not keep spending to support the economy.
The Finance Minister (FM) has basically budgeted for 22 per cent increase in direct taxes and the goods and services tax (should be achievable) and this combined with disinvestment receipts rising to Rs 1.75 trillion (from Rs 32,000 crore achieved in FY21) has been entirely used to lower the fiscal deficit by Rs 3.4 trillion. This is obviously a big bet on growth and revenue buoyancy, but a bet worth making in my view. In fact, the nominal GDP growth assumption of 14.4 per cent for FY22 is likely to be exceeded, with positive outcomes on revenues.
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