Photographer: Sumit Dayal / Bloomberg
Photographer: Sumit Dayal / Bloomberg
India’s annual budget on Monday will be an opportunity for Prime Minister Narendra Modi to boost demand and investment in an economy cratered by the second largest coronavirus outbreak in the world.
Plans focused on the growth of his government will be outlined by Finance Minister Nirmala Sitharaman when she delivers the budget speech from 11am in New Delhi. It is expected to allocate more money for health care and infrastructure development and, in part, pay them by increasing record amounts by selling stakes in state-owned enterprises.
Read: India expects GDP growth of 11% in fiscal 2022, helped by Vaccine Drive
While the success of the budget depends on the effectiveness of India being able to contain the growing infections through vaccination initiatives in the nation of more than 1.3 billion people, here are five key numbers to consider in the expenditure plan:
Nominal GDP
India’s economy is expected to rebound next year
Source: Bloomberg, Government of India
The IMF The forecast is that India’s economy will expand by 11.5% a year from April, a figure above the estimated 9.2% in a Bloomberg poll. Add an approximate 4.5% inflation to these projections and you will get a nominal growth rate of gross domestic product between 14% and 16%. The number is key as budget assumptions about revenue and expenditure are based on this. Some economists, including Samiran Chakraborty of Citigroup Inc., expect nominal GDP to be set at 15%, the band’s bullish end.
Tax revenue
India’s tax revenue is expected to grow by 19% next year
Source: Citi Research, Government of India
India’s tax collection has experienced an increase in recent times as the momentum in the economy increases after the removal of blockages to combat the coronavirus outbreak. This should give Sitharaman a reason to set global tax revenues at a level above the 16.3 trillion rupees ($ 223 billion) budgeted for the current year.
Citigroup expects 19% year-over-year growth in gross tax revenue next year, with tax revenue on healthier goods and services contributing to increased global revenue. The GST is expected to reach an average of 1.15 trillion rupees per month next year, which translates to almost 14 trillion rupees in total for the year. Higher excise taxes will also contribute, especially from the sale of petroleum products, and the robust collection of corporate taxes, thanks to the rise in corporate profits.
Spend Push
Government investment has been successful in recent years
Source: Government of India, Bloomberg
A labor market paralyzed by the impact of the pandemic and rising inequalities will put pressure on Sitharaman to increase spending on everything from infrastructure projects to the social sector and health care. While economists surveyed by Bloomberg see government investment, as reflected in gross fixed capital formation, rising 11.2% next year, Credit Suisse analysts believe the finance minister is increasing the total expenditure between 20% and 21%, from Rs 30.4 trillion budgeted for the twelve months to March. This increase can help boost growth.
Stake sale
India achieved the divestment target only twice in nine years
Sources: Department of Investment and Public Asset Management, Budget of India
Selling bets on state-owned companies could 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 by divesting in the current taxation, it can pursue this goal and aim to get record revenue from unloading shares in companies like Life Insurance Corp. of India.
Citigroup expects the Modi government to double its non-tax revenue sources by about 6 trillion rupees next year, from about 3 trillion rupees written during the current period. Another source of revenue will come from the 5G wave auction, in addition to an annual dividend (around 800 billion rupees) from India’s central bank, Citigroup said.
Fiscal deficit
India’s budget gap is projected to lose target for the fourth year in a row
Source: Government of India, Bloomberg polls
With the pandemic disrupting the government’s fiscal math, Sitharaman is nowhere near reaching the 3% budget gap required by law. Economists surveyed by Bloomberg predict that it will be earmarked for a deficit of 5.5% of GDP next year after it probably widened to 7.25% this year.
This, according to a Bloomberg poll, means New Delhi could announce a gross debt plan of Rs 10.6 trillion. Although it will be lower than this year’s record 13.1 trillion rupees, the amount will be 75% above the average of the previous five years.
– With the assistance of Manish Modi and Tomoko Sato