Union Budget 2022: Expenditure Focus Maybe On Rural, MSMEs And Health

The upcoming budget will require policymakers to ensure the fiscal impulse is maximized to improve potential growth, while signaling adherence to medium-term fiscal sustainability, Emkay Global has said in a report.

"This entails continued financial sector reforms, better resource allocation, and funding by aggressive asset sales via functional infrastructure monetization, divestment/strategic sales.

We project FY23E GFD/GDP at 6.2% after 6.8% in FY22, implying net and gross borrowing of Rs9.5tn and Rs12.9tn, respectively. Healthy tax buoyancy and divestment proceeds should likely help prop up the revenue side, in our view. We do not expect any major tax reforms, but there could be minor consumption incentives," Emkay Global has said in its report.

According to the brokerage house, expenditure focus will be on welfare, rural and MSMEs, and physical and health infrastructure. Revex/GDP ratio will moderate, albeit higher than pre-pandemic levels at 12.7%. Capex spends should remain significantly higher than pre-pandemic levels (2.3% of GDP), especially amid a larger fiscal multiplier on employment and growth, and the continued lack of private capex.

Tax buoyancy to remain healthy; non-tax revenue stream to taper

Emkay Global has said that on the revenue front, it expects gross tax/GDP ratio to increase to 10.7% amid healthy tax buoyancy across segments.

"Though we do not see any major changes in taxes, we do not rule out minor tinkering in the form of: 1) higher standard deduction for salaried taxpayers; 2) tax incentives related to affordable housing; or 3) marginally higher customs duties on PLI-related finished/semi-finished products. Separately, lower non-tax revenue will be led by lower RBI dividends," the brokerage has said.