SINGAPORE: India’s Budget for fiscal 2022 (ending March 31, 2022) represents a comprehensive effort by the Central government to shore up the country’s nascent economic recovery, S&P Global Rating said on Tuesday.
But the brawny spending programme also entails higher-than-expected general government deficits — at more than 14 per cent of GDP this fiscal year and 11.6 per cent in fiscal 2022. “While we currently see no material effect from the Budget on key credit factors, the economy’s brightening growth prospects will be critical to maintaining the sustainability of public finances, with general government debt likely to hover at more than 90 per cent of GDP over the next few years.” Though S&P recently revised upward our forecast for India’s real GDP growth to negative 7.7 per cent for fiscal 2021 from negative 9 per cent previously, it will take a long time for economy to heal from the pandemic. “We estimate that GDP per capita will fall below 2,000 dollars in fiscal 2021, and that the broader economy will only recover to its pre-Covid output level in the next fiscal year. Nevertheless, India’s economy is clearly building momentum and we forecast real GDP growth of 10 per cent in fiscal 2022 as activity resumes and the country continues to reopen.” Amid uncertainty over enduring pandemic-related risks, the government’s fiscal 2022 Budget includes a variety of measures that should aid the economy in getting back on track. These include a much higher expenditure allocation to healthcare, up 137 per cent compared with fiscal 2021, as well as productivity enhancing investments in transportation infrastructure, powering a 26 per cent rise in capital expenditure. The Budget’s emphasis on capital expenditure marks a noteworthy shift, and higher investment in India’s physical infrastructure should help to raise investment potential and competitiveness in the economy over time. S&P said India’s consistently strong real GDP growth is an important support to the sovereign ratings, and the government’s efforts to fortify growth prospects should help to maintain the economy’s healthy long-term prospects. Should economic growth materially underperform, weaker financial savings generation in the economy could imperil the government’s ability to continue to finance itself at relatively affordable rates.
Sustained high deficits could also distort capital allocation, pressuring private sector investment.
