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Budget could allocate 12-14% more for spending

Budget could allocate 12-14% more for spending

The government is likely to be less tightfisted with spending in the upcoming budget as it’s keen to support the economic recovery, said people with knowledge of the matter. Overall expenditure for FY22 could be bumped up by about 12-14% over the budgeted estimate for this year, with substantial increases for health, defence and infrastructure.

The fiscal consolidation roadmap may be stretched out and made flexible to give the government room to spend more.

The February 1 budget will also kick off another round of restructuring of centrally sponsored schemes, scrapping those that have outlived their utility or aren’t seen to be achieving the necessary goals, which would in turn allow a bigger allocation to priority areas. “Spending needs to increase if the economy has to be put back on the growth path,” a senior government official told ET.

Total expenditure was budgeted at Rs 30.42 lakh crore in the current fiscal, which may only rise marginally in the revised estimates despite the large Covid-related extra spending, as many ministries were unable to utilise their allocation due to the pandemic. The fiscal deficit, which was pegged at 3.5% of GDP, could go up to 6.5-7% of GDP in FY21. The budget for FY22 could swell to nearly Rs 35 lakh crore.

The government may redraw the fiscal consolidation roadmap to switch over to a range instead of a fixed target that constrains spending. According to the current fiscal consolidation roadmap, the government was to target a fiscal deficit of 3.3% of GDP in FY22 and 3.1% in FY23.

“Idea is to spend, not splurge,” an official said, adding that the government is keen to raise spending in targeted areas to support the economic rebound.

‘More money in the hands of people’
The International Monetary Fund pegged India’s growth in FY22 at 11.5%. The multilateral agency expects it to contract 8% in FY21 as per its latest update on Tuesday.

There is a view among policymakers that the purse strings need to be loosened to hasten the recovery process.

“Apart from enhanced spending on health and infrastructure, effort will be to put more money in the hands of people to ensure demand uplift,” said another person familiar with the discussions.

The rural jobs guarantee programme, the Pradhan Mantri Awas Yojana (PMAY), the National Health Mission as well as the schemes on tap water for every household and industrial infrastructure are likely to see enhanced allocations. Production-linked schemes will also see higher allocations as more sectors are covered in the upcoming fiscal.

Some experts have more modest expectations.

Nomura expects a 9.5% increase in total expenditure for FY22 over the 30.42 lakh crore budget estimate for FY21. It expects actual expenditure in FY21 to be about 28.62 lakh crore, up 6.6% over the previous year.

“After a fiscally tumultuous FY21, we expect a significant acceleration in nominal GDP growth and a greater reliance on asset sales to enable the government to keep spending at elevated levels while still managing to consolidate in FY22,” Nomura said in a report. The agency has retained the FY22 fiscal deficit target at 5.3% of GDP.

Dominated by the Covid theme, experts expect the budget to directly support health services and offer regulatory or policy help to the sectors most affected, such as hospitality, retail and aviation. In addition, infrastructure, agriculture, the social sector, domestic manufacturing, and incentives to boost construction and housing are likely to be in focus.

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