Unless India sustains a relatively high growth trajectory, the road to fiscal consolidation is long and winding, especially in a highly volatile global environment
Nirmala Sitharaman to increase spending on social welfare schemes and infrastructure development by up to ₹40 lakh crore. But there are strings attached, which has the money market tied up in knots
Illustration: Chaitanya Dinesh Surpur
In a few days, the finance ministry will roll out Budget 2022 preparations with the traditional halwa ceremony amidst lofty wish lists of India Inc and the sharp scrutiny of economists. Grappling with unprecedented challenges posed by the coronavirus pandemic two years ago, the government moved the goalpost by raising the FY22 fiscal deficit target to 6.8 percent from 3 percent. It aims to reduce it to 4.5 percent in FY26.
This plan has allowed Finance Minister (FM) Nirmala Sitharaman to increase spending on social welfare schemes and infrastructure development by up to ₹40 lakh crore. But there are strings attached, which has the money market tied up in knots. For one, government borrowing is likely to remain elevated at around ₹12 lakh crore. The Centre’s debt burden, as a percentage of GDP, has considerably increased to 60.5 percent in FY21 from 51.6 percent in FY20. Some economists expect it to touch 85 percent in the current fiscal. “A big concern for the markets is that fiscal deficit can remain higher for the next couple of years,” says R Sivakumar, head of fixed income at Axis Mutual Fund. Unless India sustains a relatively high growth trajectory, the road to fiscal consolidation is long and winding, especially in a highly volatile global environment.
(This story appears in the 28 January, 2022 issue of Forbes India. To visit our Archives, click here.)