EU budget will focus on fiscal consolidation and strategic divestments | Budget News

New Delhi: The Union Budget 2022 will focus on gradual fiscal consolidation while pushing public investment, creating an enabling environment for private investment and increasing resources through strategic divestments, Morgan Stanley said in a report .

The budget should focus on gradual fiscal consolidation, continuing to support investment-led growth with a surge in public and private investment spending, and mobilizing additional resources through strategic divestments and monetization of assets.

“Other than that, we are seeking clarification for Indian bonds to be included in global bond indices. Indeed, the overall objective of the government should be to effectively use all revenue levers (tax compliance to GDP tax, sales of strategic assets) to sustainably improve the health of the public sector balance sheet,” Morgan Stanley said.

The impact of the budget on the market has been on a secular decline. Nonetheless, market participants still need to trade volatility. Factors that are likely to have maximum impact include a credible budget deficit target, government spending plans versus fiscal consolidation, long-term capital gains tax changes, lower taxes for the services sector, the resolution of tax issues for FAR bonds, and the timing and amount of asset sales.

Disruptions caused by the pandemic have taken a heavy toll on India’s fiscal stance, with the central government budget deficit hitting a record high of 9.2% of GDP in FY21. However, history has changed in fiscal year 2022 with a positive surprise from tax revenues, which saw an improvement in their dynamism. Thus, gross tax revenue should stand at 10.9% of GDP in 2022, against a budget estimate of 9.9% of GDP. As such, we expect the fiscal deficit to be 6.8% of GDP, assuming the IPO of the LIC is delayed to F2023. If the IPO takes place in F2022, the budget deficit could be less than 6.4% of GDP, Morgan Stanley said.

“We expect the fiscal deficit to be 6% of GDP in F2023, due to some reduction in pandemic-related spending and continued fiscal momentum. A gradual fiscal consolidation path will also give the government the flexibility to provide any additional support to the economy. Covid-related disruptions continue into F2023,” he added.

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