Despite the smart bounce back from the pandemic-induced low, the Indian economy remains fragile and growth, volatile. Due to global inflationary concerns, fiscal would be the main policy tool to foster growth.
With better-than-anticipated revenue receipts, especially customs and direct taxes, and relatively contained spending so far, there is elbow room to maintain large fiscal accommodation.
Yet, with a longer-term vision, we expect the start of fiscal consolidation in this budget. The fiscal deficit target is likely to be around 5% in FY23, down from 9.4% in FY21.
At the same time, both economic reality and political exigencies may nudge the government to roll out more supportive schemes for agriculture, the rural economy, micro, small and medium enterprises and social sectors.
Indian corporates are doing much better than the overall economy. Measures such as a corporate tax-rate cut, Atmanirbhar Bharat and production-linked investment schemes have helped. We expect these to continue rather than fresh measures for corporates.
Supports to laggard sectors such as hospitality or transportation are more likely to be through easily accessible funding. The government is attempting to boost growth through investment rather than consumption. This stance is likely to continue.
We expect the budget to be neutral to marginally negative for equities in the near term, but positive for the bond market.
By Anand Rathi