Photographer: Sumit Dayal / Bloomberg
Photographer: Sumit Dayal / Bloomberg
India’s annual budget on Monday will be Prime Minister Narendra Modi’s chance to stimulate demand and investment in an economy craterized by the second largest coronavirus outbreak in the world.
The plans centered on the growth of her government will be outlined by the Minister of Finance, Nirmala Sitharaman, when she gives her budget speech from 11am in New Delhi. It is expected to set aside more money for healthcare and infrastructure development and partially pay for them by raising record amounts by selling stakes in state-owned companies.
Read: India achieves 11% GDP growth in fiscal year 2022 aided by vaccine application
While the success of the budget depends on the effectiveness with which India is able to stem the increase in infections through vaccines in a country of more than 1.3 billion people, here are five important numbers to note in the spending plan:
Nominal GDP
India’s economy is expected to recover next year
Source: Bloomberg, Government of India
The IMF India’s economy is forecast to expand 11.5% in the year beginning in April, up from 9.2% estimated in a Bloomberg survey. Add inflation of around 4.5% to these projections and you will have a nominal growth rate of gross domestic product in the range of almost 14% -16%. The number is critical, as the budget assumptions for revenues and expenditures are based on it. Some economists, including Citigroup Inc.’s Samiran Chakraborty, expect nominal GDP to be set at 15% – the optimistic end of the band.
Tax revenue
Indian tax revenues are expected to grow 19% next year
Source: Citi Research, Government of India
India’s tax collection has recently increased, as the economy’s momentum builds up after the end of the blockades to combat the coronavirus outbreak. This should give Sitharaman a reason to peg overall tax revenue to a level higher than the 16.3 trillion rupees ($ 223 billion) budgeted for the current year.
Citigroup expects 19% year-on-year growth in gross tax revenue next year, with healthier tax revenue on goods and services helping to boost overall revenue. He expects GST to generate an average of 1.15 trillion rupees per month in the next fiscal year – translating to almost 14 trillion rupees in total for the year. Higher excise taxes, especially on the sale of petroleum products, and robust corporate tax collection, thanks to a recovery in corporate profits, will also help.
Spending effort
Government investment has taken a hit in recent years
Source: Government of India, Bloomberg
A labor market hampered by the impact of the pandemic and the increase in inequalities will put pressure on Sitharaman to increase spending on everything from infrastructure projects to the social and health care. While economists polled by Bloomberg see government investment, reflected by gross fixed capital formation, rising 11.2% in the next fiscal year, Credit Suisse analysts see the finance minister raising total spending by 20% -21% out of 30 , 4 trillion rupees budgeted for the 12 months to March. This increase could help boost growth.
Bet sale
India has reached its divestment target on only two occasions in nine years
Sources: Department of Investment and Management of Public Assets, Budget of India
Selling stakes in state-owned companies can be a safe way to raise money in the new year. After the pandemic ruined the government’s plan to raise 2.1 trillion rupees through divestment in the current fiscal year, it can push that goal forward and seek record revenues from stock unloading at companies, including Life Insurance Corp. of India.
Citigroup expects Modi’s government to double non-tax revenue sources of about 6 trillion rupees next year, from about 3 trillion rupees set for the current period. Another source of revenue will come from the 5G wave auction, in addition to an annual dividend – about 800 billion rupees – from the central bank of India, Citigroup said.
Fiscal Deficit
India’s budget deficit is expected to miss the target for the fourth consecutive year
Source: Government of India, Bloomberg surveys
With the pandemic disrupting the government’s fiscal mathematics, Sitharaman is nowhere near reaching the 3% budget gap determined by law. Economists polled by Bloomberg predict that it will target a deficit of 5.5% of GDP next year, after it probably increased to 7.25% this year.
This, according to a Bloomberg survey, means that New Delhi could announce a gross loan plan of 10.6 trillion rupees. Although it is less than this year’s record of 13.1 trillion rupees, the amount will be 75% above the average of the previous five years.
– With the help of Manish Modi and Tomoko Sato