Budget shouldn’t focus too much on fiscal goals, economy needs support: SBI

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It has been reported that The State Bank of India (SBI) in-house economists have urged the government to not focus on fiscal consolidation too much in Budget as there is a need for get pandemic-hit economy on track.

India is on track to meet its budget deficit target this year and will likely aim to narrow the gap to 6.3% of gross domestic product next year, SBI said.

India’s 6.8% fiscal deficit goal for the current year is narrower compared to last year, but still wider than the shortfall seen in the pre-pandemic years. Finance Minister Nirmala Sitharaman’s budget next month will show if improved tax revenues were enough to offset a shortfall in income from asset sales.

Any new taxes such as a wealth tax or others could do more harm than benefit. About ₹15 lakh crore rupees expected from India’s planned inclusion in bond indexes. If Life Insurance Corp (LIC) is listed, the government could end the year with a large cash balance of ₹3 lakh crore, the report said.

“One of the best way to begin the new fiscal is to complete the share sale of LIC this fiscal. This can go a long way in repairing the overstretched balance sheet which in turn will bring down fiscal deficit to a much lower 6.3% in FY23 as the public coffers will be left with a cash surplus of at least ₹3 lakh crore to begin the new fiscal,” SBI chief economist Soumya Kanti Ghosh said in a pre-Budget note on Wednesday.

He said the Budget should not correct the fiscal deficit by more than 30-40 bps as most sectors of the economy still need support.

Assuming the government keeps the expenditure growth at 8% over FY22 estimates at ₹38 lakh crore in FY23 and receipts (minus borrowing and other liabilities) would grow by 10.8%, it would lead to fiscal deficit of around ₹16.5 lakh crore or 6.3% of GDP in FY23.

Ghosh also pointed out that unlike in FY22, when RBI has done OMOs of around ₹2.6 lakh crore, helping government borrowing programme without disruptions, in FY23, such support is not likely, the report said.

He specifically called for continuing support to MSMEs saying the 6.33 crore of such units contribute 29 per cent of GDP, employing over 11 crore. And one of the ways to help them is let bank lend them more by verifying their cashflows seamlessly through GST 4/ITR on real-time basis.

Another step could be extending the Emergency Credit Line Guarantee Scheme (ECLGS) till end FY23 to enable completion of the entire targeted ₹4.5 lakh crore of credit flow under it. (Mint)