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 The upcoming Union Budget will require policymakers to look beyond the convention to ensure that an effective fiscal stance does not become pro-cyclical, while policy adherence to medium-term fiscal sustainability is signalled, a brokerage report said on Thursday.

According to a report on the Indian economy by Emkay Global Financial Services, for this to happen, innovative financial sector reforms will be required along with better resource allocation, and possible fiscal funding by aggressive asset sales in the form of existing functional infrastructure monetisation, disinvestment, strategic sales, etc.

The brokerage had projected that in FY22, the country's gross fiscal deficit will stand at 5.5% of the GDP after 7.1% in FY21E, implying net and gross borrowing of Rs 8.5 lakh crore and Rs 11 lakh crore respectively.

Higher nominal GDP growth of 14.5%, tax buoyancy of 1.3 and aggressive divestment proceeds at Rs 1.6 lakh crore will likely help prop up the revenue side, the report said, adding that the Budget is unlikely to bring in any major tax reforms or changes.

The focus of the expenditure in the Budget is likely to be on physical and health infrastructure. Capex-led stimulus over a consumption-focused stimulus should be the key, especially amid the larger multiplier on employment and growth, the report said.

The Centre's capex will likely remain at 1.8x of GDP. Public capex funding will continue through the mix of direct fiscal and internal and extra budgetary resource (IEBR) route via PSEs borrowing.