Domestic economists at the country’s largest lender, the State Bank of India (SBI) have urged the government to spend budget on taking care of the pandemic-ravaged economy and not focus too much on fiscal consolidation as there is a need more stabilization measures to support the fledgling recovery .
“And one of the best ways to start the new fiscal year is to complete LIC’s share sale this fiscal year. This could go a long way toward restoring the overburdened balance sheet, which in turn will reduce the budget deficit. to a much lower 6.3 percent in FY23 as the public treasury will have a cash surplus of at least Rs 3 lakh crore to start the new fiscal year,” SBI chief economist Soumya Kanti Ghosh said in a pre-budget note on Wednesday. .
He said the budget should not correct the budget deficit by more than 30-40 basis points, as most sectors of the economy still need support.
With a budget deficit of 6 to 6.5 percent for FY23, down from 6.8 to 7.1 percent from FY22, he said the budget should also allow for very gradual fiscal consolidation. For FY23, fiscal consolidation should be limited to 30-40 basis points from the current budget.
He also warned at this time about new taxes, such as wealth tax or others, because that could do more harm than benefit.
Assuming the government keeps expenditure growth at 8 percent from FY22 estimates at Rs 38 lakh crore in FY23 and revenue (minus loans and other liabilities) grows by 10.8 percent, this would lead to a budget deficit of about Rs 16.5 lakh crore or 6.3 percent of GDP in FY23.
If the sale of LIC shares goes through in FY22, the government could end fiscally with a large cash balance of Rs 3 lakh crore. This can be useful to support much of the government budget deficit without relying on market borrowing, as indicated in the note.
Against this background, the Centre’s net market borrowing is likely to be around Rs 8.2 lakh crore and with repayments of Rs 3.8 lakh crore, gross borrowing is expected at Rs 12 lakh crore (73 percent of the budget deficit and the same as in FY22 and FY21), Ghosh said.
Total gross borrowings by the Center and the states are likely to be around Rs 21 lakh crore (Rs 19.7 lakh crore in FY22) and net borrowings around Rs 14.8 lakh crore (Rs 15 lakh crore in FY22) .
Ghosh also pointed out that in FY23, unlike FY22, when RBI made OMOs of about Rs 2.6 lakh crore, thus supporting the government loan program without disruption, such support in FY23 is unlikely.
He specifically called for continued support for MSMEs, saying that the 6.33 crore of such units contribute 29 percent of GDP, with more than 11 crore in service. And one of the ways to help them is by letting the bank lend them more by seamlessly verifying their cash flows through GST 4/ITR on a real-time basis.
Another step could be to extend the Emergency Credit Line Guarantee Scheme (ECLGS) until the end of FY23 in order to complete the full target of Rs 4.5 lakh crore of credit flow under it.
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