InvestorQ : What do you think of the fiscal deficit shooting up in the Budget presentation on 01 Feb?
Riya Dwivedi made post

What do you think of the fiscal deficit shooting up in the Budget presentation on 01 Feb?

Answer
image
shrinidhi Rajan answered.
5 months ago
Follow

At the outset, there was no surprise in the high level of fiscal deficit and many economists had already warned that such a eventuality was perfectly possible. What was rather surprising was that the government took the initiative and announced such a high fiscal deficit for the current year and the next year.

Nirmala Sitharaman allowed the fiscal deficit to shoot up nearly 250 bps ahead of market expectations. She pegged fiscal deficit for FY21 at 9.5% and the fiscal deficit for FY22 at 6.8%. This may have been a surprise but it certainly prepares the market that the policy makers are in sync with the need of the hour.

The FM also went ahead and gave a trajectory for the fiscal deficit, which is a major positive as there are no uncertainties about the tightening of spending in the near future. Budget also laid out a long term chart of fiscal deficit tapering gradually to 4.5% only by fiscal 2026. That gives the Indian economy a full 5 years to use fiscal policy to boost economic growth.

In addition, the budget has also initiated amendments to the FRBM Act seeking exemption from the FRBM rigidities as a special case. The trajectory should also give comfort to rating agencies that the intent is eventually bring the fiscal deficit under check. The budget has also exhorted rating agencies to look at the fiscal deficit from a global perspective.

0 Views