(Bloomberg) -- India is on track to meet its budget deficit target this year and will likely aim to narrow the gap to 6.3% of gross domestic product next year, according to the nation's largest lender.
The budget on Feb. 1 should allow for very gradual fiscal consolidation to complement the economy's slow recovery from the pandemic, State Bank of India economist Soumya Kanti Ghosh wrote in a research report Wednesday. He expects about 8% growth in expenditure and 10.8% increase in receipts, while estimating gross market borrowings at 12 trillion rupees ($161 billion) in the year starting April 1.
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India's 6.8% fiscal deficit goal for the current year is narrower compared to last year, but still wider than the shortfall seen in the pre-pandemic years. Finance Minister Nirmala Sitharaman's budget next month will show if improved tax revenues were enough to offset a shortfall in income from asset sales.
“The main objective of the budget should be to create an environment that will give further impetus to growth,” by giving higher weight to a short-term stabilization policy rather than long-term policy, Ghosh said.
Other points from the report:
- Any new taxes such as a wealth tax or others could do more harm than benefit
- About 15 trillion rupees expected from India's planned inclusion in bond indexes
- If Life Insurance Corp. is listed, the government could end the year with a large cash balance of 3 trillion rupees
- GDP growth is likely to be around 8% next year, against 9.2% this year
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