You are here: Home » Budget » News
Business Standard

Budget 2021 a big effort by govt to boost country's economic recovery: S&P

The rating agency, in a statement, said it currently sees no material effect from the Budget on India's key credit factors

Topics
Standard and Poor’s | Budget 2021 | India economy

Abhijit Lele  |  Mumbai 

Budget 2021
S&P said the government will seek to balance its spending imperative against its limited fiscal headroom by consolidating its finances at a much slower pace than it planned before the Coronavirus pandemic

Global rating agency Standard and Poor’s (S&P) on Tuesday said that India's Budget for FY22 represents a comprehensive effort by the central government to shore up the country's nascent However, the brawny spending programme also entails higher-than-expected general government deficits--at more than 14 per cent of GDP this fiscal year (FY21). It would be 11.6 per cent in FY22.

The rating agency, in a statement, said it currently sees no material effect from the Budget on India's key credit factors. But, the economy's brightening growth prospects will be critical to maintaining the sustainability of public finances. The general government debt likely to hover at more than 90 per cent of the Gross Domestic Product (GDP) over the next few years.

Union Finance Minister Nirmala Sitharaman presented the Budget for FY22 in the Parliament on February 1, 2021.

S&P said that fiscal consolidation has taken a backseat and aggressive provisioning to help heal the economy will be costly. The central government's reported shortfall of 9.5 per cent of GDP in FY21 was bigger than expected. The general government shortfall is highly likely to exceed our previous forecast of 12.5 per cent of GDP this year.

The prospect of consolidation from these heights, while maintaining a significant degree of support for the economy, poses a stout challenge to India's policymakers.

S&P said the government will seek to balance its spending imperative against its limited fiscal headroom by consolidating its finances at a much slower pace than it planned before the Coronavirus (Covid-19) pandemic.

Against a pre-pandemic deficit target of 3.5 per cent of GDP, the central government will seek a relaxation of the FRBM Act (enacted to ensure fiscal discipline) to allow deficits higher than 4.5 per cent of GDP up to fiscal 2026.

India will have exceptionally high fiscal deficit this fiscal year. And in combination with the economy's record contraction, the general government's net stock of debt will surge by about 18% to 92% of GDP by the end of FY21.

The deficit is set to remain higher than 10 per cent of GDP in FY22, and likely to recede only gradually thereafter. Hence, strong nominal GDP growth will be critical to expand revenues at a clip of 23 per cent next year, and in keeping the debt stock stable at just above 90 per cent of GDP through 2023.

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: Tue, February 02 2021. 12:55 IST
RECOMMENDED FOR YOU