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India Budget Gap Could Narrow to 6.3% Next Year, SBI Says

India is on track to meet its budget deficit target this year and may aim to narrow the gap to 6.3% of GDP next year as per SBI.

India Budget Gap Could Narrow to 6.3% Next Year, SBI Says
A customer counts Indian one-hundred rupee banknotes before depositing them in India. (Photographer: Dhiraj Singh/Bloomberg)

India is on track to meet its budget deficit target this year and will likely aim to narrow the gap to 6.3% of gross domestic product next year, according to the nation’s largest lender. 

The budget on Feb. 1 should allow for very gradual fiscal consolidation to complement the economy’s slow recovery from the pandemic, State Bank of India economist Soumya Kanti Ghosh wrote in a research report Wednesday. He expects about 8% growth in expenditure and 10.8% increase in receipts, while estimating gross market borrowings at 12 trillion rupees ($161 billion) in the year starting April 1. 

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India’s 6.8% fiscal deficit goal for the current year is narrower compared to last year, but still wider than the shortfall seen in the pre-pandemic years. Finance Minister Nirmala Sitharaman’s budget next month will show if improved tax revenues were enough to offset a shortfall in income from asset sales.   

“The main objective of the budget should be to create an environment that will give further impetus to growth,” by giving higher weight to a short-term stabilization policy rather than long-term policy, Ghosh said.

Other points from the report:

  • Any new taxes such as a wealth tax or others could do more harm than benefit
  • About 15 trillion rupees expected from India’s planned inclusion in bond indexes
  • If Life Insurance Corp. is listed, the government could end the year with a large cash balance of 3 trillion rupees
  • GDP growth is likely to be around 8% next year, against 9.2% this year

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