HIGHER SPENDING, COVID-19 CESS: BROKERAGES’ EXPECTATIONS FROM BUDGET

Following the stupendous rally that has seen the Sensex more than double from its March 2020 low to hit the 50,000-mark, indices are now looking out for proposals in the Union Budget — scheduled to be presented on February 1 — which could help revive the Covid-impacted economy and lift the fortunes of corporate India as well. While most experts have called upon the government to loosen its purse strings and not worry about the fiscal deficit in a pandemic-hit year, the government will be walking a tightrope if it decides to increase spending without going overboard. Growth, and not fiscal prudence, should be the priority for the government, according to experts.

JEFFERIES

We project tax revenue growth of 20 per cent YOY to ~22.8 trillion in the coming year, with fiscal deficit (Centre) declining by 1.2 percentage points (ppt) to 5.5 per cent of GDP in FY22.

CREDIT SUISSE

While the government appears to be willing to spend, ~4.2 trillion of extra spending may be difficult to execute. It may go conservative on GDP growth assumptions (say 13 per cent), and target a lower deficit (5.2 per cent), which would imply 13 per cent in total expenditure growth. In this scenario, spending on residual heads could be

40 per cent higher than FY20, but the absolute increase may be a more reasonable ~2.5 trillion. May also see a jump in health care spend. Further spend on urban housing can boost urban low-skilled jobs: lack of policy tools to support the urban poor is another lacuna that needs attention. Financial sector reforms also likely.

BARCLAYS

Expect the Centre to propose fiscal deficit of ~12.2 trillion or 5.5 per cent of GDP, in FY22, which we estimate would allow the government to raise spending to over ~34.7 trillion. The government is likely to undershoot its target of ~1.3 trillion from communication services by as much as ~900 billion. Divestment will be restarted, with the target for proceeds likely to be set at close to ~2 trillion for FY22.

Focus of the Budget and off-balance-sheet outlays could be on a larger allocation to the national infrastructure pipeline via public/private partnerships. Defence and health care could also receive significantly higher budgetary allocation. The government will seek to strengthen military capabilities in light of recent skirmishes with China. Accounting for the incremental spending and revenue shortfall, we estimate consolidated state and central government deficit to reach 14 per cent of GDP — with off-balance-sheet liabilities reaching 1.3 per cent of GDP, a level that is likely to raise questions surrounding sustainability.

NOMURA

The government will spend 1.8 per cent of GDP on pandemic support measures in FY21. Measures such as a higher outlay for universal employment guarantee programme, capital spending, higher fertiliser spend, affordable housing — which will probably amount to 0.9 per cent of GDP, are likely to continue in the FY22 Budget. Add to this, the first installment of the newly introduced PLI Scheme for manufacturing firms (around 0.8 per cent of GDP to be spent over five years), and close to 1 per cent of GDP worth of spending from measures introduced in FY21 are likely to feature in the FY22 Budget. The government may retain higher excise duties on fuel, and possibly impose higher sin taxes and a Covid cess. Fiscal deficit target likely to be set at 5.3 per cent of GDP; expect the government to fund around 70 per cent of the fiscal deficit through net market borrowing (8.3 trillion in FY22), which suggests gross market borrowing of around ~11 trillion in FY22, down from ~13.1 trillion in FY21.

PHILLIP CAPITAL

Infrastructure development will be core thesis of government’s efforts to stimulate growth, focusing on railways, defence, and roads. Asset monetisation and disinvestment will offer funding support for infrastructure projects in FY22 and onwards. Expect government to roll back most of the cash/subsidy benefits offered in FY21 during Covid. That said, policy measures and new investment to develop agriculture and allied activity, rural economy and its infrastructure — are all here to stay and may also gather pace. Recapitalisation of public sector banks (PSBS) to stimulate credit growth and offer fiscal support to Covid-hit sectors like hospitality is also expected. Higher allocation will be made to fund Covid vaccination, which can be offset by reduction in sops offered to rural India in FY21.