Budget ’22 – Key takeaways and the Road Ahead – General – Trading Q&A by Zerodha

I was just trying to get more information and details on how the budget has been historically and what is likely to happen/could happen tomorrow, February 1st. Some interesting data found:

Regulating public finances

Fiscal consolidation refers to ways and means of narrowing the fiscal deficit. The government usually borrows to bridge the deficit. It will then have to allocate a portion of its profits to debt service. The interest burden will increase as the debt increases.

The actual fiscal deficit figures for 2020-2021 were 9.2 percent of GDP. The target for 2021-22 was 6.8 per cent of the GDP that the Government of India is likely to achieve.

However, fiscal consolidation should follow a slow approach for FY23. Estimates of fiscal deficit for FY23 are seen at around 6.4%.

Revenues

Corporate profits and taxes make up a significant portion of government revenue and a large portion of government expenditures are financed through tax revenue. However, the government has always missed annual liquidation targets.

The target for the current fiscal year was 1.75 trillion rupees which may not be met again unless LIC’s IPO is completed in the next two months.

The Federation of India’s FY23 budget is likely to set a higher divestment target for the next fiscal year with more focus on the National Income Generation Pipeline (NMP).

It should be noted that the conclusion of divestment on Air India, in addition to the upcoming listing of LIC, is expected to push the center towards a strong divestment target in FY23.

expenses

Because of the pandemic, the effects of which are still present, and the elections to be held in 2022, these factors will mainly shape the budget. The elections may have the upper hand, making it a populist budget that must be balanced.

However, focus should be placed on capital expenditures as they create jobs at the basic level and multiply growth in the long run.

borrowings

The fiscal deficit is about 15-16 trillion rupees, of which we finance a third (5 trillion rupees) from small savings and the rest from loans.

If you take a look at the data below, the majority of government loans come from small savings and loans from the market. Finding alternatives to borrowing could be one way to go like increasing external borrowing, private equity, or retail sharing to fuel capital expenditures.

financial deficit

Although fiscal deficits affect inflation, fiscal support is still an important factor for economic and general well-being.

For example, if the government spends more, it will help growth but lead to demand-driven inflation. This may change monetary policy by reducing the money supply/liquidity by raising prices, which may again weaken demand.

The data shows that an increase in the fiscal deficit can be positive most of the time for the economy.

over the years

the paper

It will be interesting to see how the budget will look tomorrow, what will be stimulated to the general public and how the national economy is expected to perform in the upcoming public finances.

Source: DSP and CMIE

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