Expect a growth-oriented budget with an eye on fiscal consolidation: ICICI Securities

Updated : January 21, 2021 03:08 PM IST

Personal income tax rate cut on the lines of corporate tax rate cut announced in 2019, removal of STT, strategic disinvestment deal announcement would be positive for the markets.

Slow fiscal consolidation driven by expansion in non-development expenditure may pose downside risks.

The Union Budget FY22 is likely to focus on boosting spend on development expenditure and health with an eye on fiscal consolidation. This budget is expected to have no major short-term on the equity markets, analysts said.

According to ICICI Securities, personal income tax rate cut on the lines of corporate tax rate cut announced in 2019, removal of STT, strategic disinvestment deal announcement would be positive for the markets while slow fiscal consolidation driven by expansion in non-development expenditure may pose downside risks.

In its base case expectations, ICICI Securities projects fiscal deficit to reduce from around 7.2 percent in FY21E to 5.5 percent in FY22E of GDP largely on account of a sharp drop in resource mobilisation and contraction in FY21E nominal GDP base (Rs 195 lakh crore) compared to modest rise in total expenditure over BE.

However, normalisation of economic activity will mean a sharply higher nominal GDP base in FY22E (Rs 224 lakh crore) and improvement in resource mobilisation, which will help lower the fiscal deficit to 5.5 percent, the brokerage house said in a report.

Deficit financing for FY22E will result in lower gross market borrowing compared to FY21E at around Rs 10 lakh crore (net borrowing of Rs 8 lakh crore) and small savings mobilisation will continue to be elevated at around Rs 2.6 lakh crore, it added.

Analysts expect the budget’s focus will be on development expenditure while providing policy framework for promoting manufacturing and Infrastructure sector.

Finer contours of the PLI scheme for boosting manufacturing for the 10 sectors announced earlier and resources likely to be made available. Focus on infrastructure finance through the setting up of an 'infrastructure development finance institution’, which can arrange finance for long-gestation infra projects, the brokerage firm expects.

It also expects budget to focus on reviving household consumption demand via tax incentives for spending and higher deductions on housing loans.

Expect a growth-oriented budget with an eye on fiscal consolidation: ICICI Securities

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