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Budget likely to focus on growth, structural reforms: Report

Bank of America Securities India expects the budget to peg "fiscal deficit at a high 5 percent of GDP for FY22 and 7.2 percent for FY21, as it is likely to step up capex, recap public sector banks, push asset sales to break government monopolies, offer sops for real estate, tax cuts for lower income groups and creation of a bad bank".

January 29, 2021 / 02:26 PM IST
Representative image (PC- MoneyControl.Com)

Representative image (PC- MoneyControl.Com)

The budget, to be presented on February 1, is likely to be less worried about fiscal deficit and will be focused more on nursing the fragile growth, according to a Wall Street brokerage report.

Bank of America Securities India expects the budget to peg "fiscal deficit at a high 5 percent of GDP for FY22 and 7.2 percent for FY21, as it is likely to step up capex, recap public sector banks, push asset sales to break government monopolies, offer sops for real estate, tax cuts for lower income groups and creation of a bad bank".

Its house economists expect these spends to be funded by debt and partly by imposing a cess on high income groups and also by some non-fiscal measures like tapping the central bank's revaluation reserves and bank recapitalisation and infra bonds.

"We see high possibility for tax cuts for low income groups to boost consumption, sops to spur real estate demand, PSB recapitalisation by 0.25-0.5 percent of GDP via non-fiscal levers like recap bonds of around Rs 20,000 crore  and/or use of $125 billion from RBI revaluation reserves, expansion in MSME credit guarantee scheme and structural reforms in the form of breaking large government monopolies and/or introduction of private/foreign competition as outlined under the PSU policy in May 2020," the report said.

On government capex, the report expects it to reverting to 18 percent. In FY2017-19 the government's infra spend was scaled up to 18 percent of budget expenditure from 10 percent in FY14 but it was scaled down to 16 percent in FY21.

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The budget may also have an announcement to create a domestic financial institution to help fund port, road, and power projects with an initial equity capital of around USD 14 billion, it said.
PTI
first published: Jan 29, 2021 02:25 pm

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