India Economy Watch - Why Will Government Support Towards GDP Growth Be Limited Post Covid-19? Motilal Oswal
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Motilal Oswal Report
On February, 01 2021, the Government of India presented a revised fiscal roadmap to bring down its deficit from 9.5% in FY21 (which turned out to be 9.2%, as per provisional estimates) to 6.8% of gross domestic product in FY22 and further to 4.5% of GDP by FY26.
With this relaxed deficit target, it was (and is still) argued that government spending could be a major catalyst for economic growth over the next few years.
However, our opinion drastically differs from the market consensus.
While the GoI has relaxed and revised its deficit target, it projects large consolidation of 0.5% of GDP every year up to FY26.
It failed to bring down its deficit to 3% of GDP before Covid-19 and was able to reach a fiscal deficit of 3.5% in FY19 (from 4% of GDP in FY15).
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