Economic Survey 2022: Achieving 6.8% fiscal deficit target is easy minus LIC IPO

The Economic Survey 2022 gives an impression that achieving the fiscal deficit target of 6.8 per cent in the current fiscal 2021-22 is more like a cakewalk despite delayed disinvestment in the Life Insurance Corporation (LIC), which was expected to mobilise over Rs 1 lakh crore in the IPO market.

"A robust economic growth path and various tax policy and administration reforms undertaken over the last few years will be fundamental in sustaining the buoyant revenues in the medium term, and thus, be on track with the fiscal path outlined by the Medium-Term Fiscal Policy Statement," stated the survey.

It clearly states that reaching the Budget estimate for fiscal deficit during 2021-22 will not be a concern for the Central Government.

"The agile fiscal policy approach adopted by the Government, coupled with the buoyant revenue collection received so far this year, has created headroom for taking up additional fiscal policy interventions based on the need of the evolving situation. The targeted focus on capital expenditure, with its resulting multiplier effects, will be vital in sustaining the economic growth," the survey read.

The budgeted fiscal deficit for 2020-21 was revised from 3.5 per cent to 9.5 per cent after the pandemic hit the economy. The actual fiscal deficit numbers for 2020-21 stood at 9.2 per cent of GDP. The target for 2021-22 was a 6.8 per cent of GDP.

The finance minister Nirmala Sitharaman last year said that the government will continue with the path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5 per cent of GDP by 2025-2026 with a fairly steady decline over the period. 

"We hope to achieve the consolidation by first, increasing the buoyancy of tax revenue through improved compliance, and secondly, by increased receipts from monetisation of assets, including Public Sector Enterprises and land," said the finance minister.

The economic research team of state-owned Bank Of Baroda expects the fiscal deficit at 7 per cent as compared to the Budget estimate of 6.8 per cent in 2021-22. They have cited a shortfall in disinvestment proceeds as the reason. The LIC is still to file the draft prospectus with the market regulator. The time is already running out to tap the market by March this year. 

HDFC Securities also believes that the fiscal deficit target for 2021-22 could exceed solely due to this shortfall despite the cushion available by higher nominal GDP growth (than expected). "In such a circumstance, Budget provisions will need to give the right signals to the Indian people and investors from abroad," it warned.

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