India’s Budget Deficit to Narrow Down to 5.3% of GDP in FY22, Forecasts GlobalData

Posted on 31st January 2022

The upcoming Union Budget of India (2022-23) is expected to focus on bringing in economic reforms to ease supply-side bottlenecks, provide production-linked incentive (PLI) schemes to domestic MSME’s* sector, asset monetization and privatization. Along with this, the government needs to strike a balance between fiscal expenditure and fiscal consolidation. Against this backdrop, GlobalData, a leading data and analytics company, expects the budget deficit to narrow down to 5.3% of GDP in 2022 compared to 5.6% in 2021.

With the expected higher tax and non-tax revenue collection, GlobalData forecast the revenue and expenditure to grow by 13.4% and 9.3% respectively in 2022.

To foster green energy, the budget might focus on tax relaxations to promote investments in renewable energy sector. Aviation sector might hope for tax cuts on jet fuel to increase overall sector growth. To encourage inbound domestic and international tourism, GlobalData expects tax concessions to hotels and resorts.

Gargi Rao, Economic Research Analyst at GlobalData, comments: “With the Delta and Omicron variant causing a mayhem on various sectors including tourism, manufacturing, retail, and housing, GlobalData expects strong targeted incentives in 2022-23 budget estimates. To increase consumer demand and disposable income for the salaried class, the budget may increase the basic tax exemption limit. To empower entrepreneurs, the budget might introduce new start-up friendly policies and tax reductions.”

With a high COVID-19 positivity rate of 19.5% as of January 27, 2021, the budget is expected to keep health sector as a major priority. The country needs to ramp up its vaccination rates along with provision of booster doses to the country’s eligible adult population in the coming months.

To re-instate the farmer’s confidence, the upcoming budget might focus on developing Agri-tech industry and allied sectors along with prioritization of minimum support prices.

Rao continues: “The country needs to overcome from the perils of jobless growth. A push to manufacturing, textile, and construction activities is anticipated which may lead job creation. However, a prudent balance between job creation and inflation has to be maintained.”

Furthermore, with prudent policies to tackle the non-performing assets, the overall banking sector has shown signs of recovery. The upcoming budget could introduce policy initiatives to give impetus to innovations in the banking sector, by offering incentives such as tax subsidy in the form weighted deductions.

Rao concludes: “The focus of the upcoming budget is to achieve steady economic growth in all sectors and reduce widening income gaps. Inclusive and sustainable economic growth is the way forward and GlobalData projects India’s real GDP growth to grow by 7.8% in 2022, fastest among all other peer nations.”

*MSME- Micro-small and medium enterprises.