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Budget 2022 preview: Consolidation to continue

Could budget fiscal deficit ~6% of GDP in FY23E

* The Government of India (GoI) will present Union Budget 2022–23 on 1st Feb’22. Considering provisional data for the first eight months (Apr-Nov’21), total receipts of the GoI could exceed Budget Estimates (BEs) by INR2.2t in FY22E. So, in order to keep its fiscal deficit unchanged at INR15.1t, the GoI will have to spend INR16.3t in the last trimester of FY22E, slightly higher than INR16t spent during the corresponding period of last year, which was almost double of that spent during the corresponding period in FY20. If so, the Centre’s total spending will grow 5.4% in FY22E, better than the budgeted growth of 1%, but still the lowest in 16 years. Also, because of a higher denominator (nominal GDP), the fiscal deficit will be 6.5% of GDP in FY22E v/s the target of 6.8% of GDP.

* Revenue spending may grow 2.3% YoY to INR31.6t in FY22E (similar to the target, including supplementary grants), while achieving its FY22 capex target (of INR6.2t, including supplementary grants) seems a tall ask. In order to meet its capex target, the GoI has to spend INR3.5t in the last trimester of FY22, which is similar to its total capex in FY20 and double of INR1.8t in the corresponding period of FY21. We do not see it meeting its FY22 capex target.

* Following a robust 30% growth in FY22E, total receipts are expected to grow 13.4% YoY in FY23E, assuming a gross tax buoyancy of 1.1x, similar to that in the pre-COVID period. If total spending rises by 9% in FY23E, the gross fiscal deficit of the Centre would be INR15.4t, or 6% of GDP. This implies gross market borrowings of INR12.5t in FY23E v/s INR10.5t in FY22E, implying net market borrowings of INR8.3t, financing 54% of fiscal deficit.

* Besides these all-important macro numbers, we will closely track the upcoming Budget for any announcements in three areas: 1) some self-liquidating temporary personal job/income supporting measures to boost private consumption in the immediate future, 2) some measures to support the rural economy, amid its weakening and the impending state elections, and 3) any measures to revive the Residential Real Estate sector would be welcome.

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