Fiscal deficit in FY23 may be less than expected: ING

6 Jul 2022 , 10:30 AM

Given that the nominal GDP is expected to be higher than anticipated, India’s fiscal deficit for the fiscal year 2022—2023 may be lower than the budget objective of 6.4 percent of GDP, according to ING Bank’s report on July 5.

According to Robert Carnell, Regional Head of Research, Asia-Pacific at ING, “If our estimates for GDP, inflation, rates, and bond yields play out, and revenues and expenditures change accordingly, then we may even see the deficit coming in lower than 6.3 percent.”

“India is on schedule to see the debt to GDP ratio drop down from 86.9 percent GDP in 2022 to 82.1 percent in 2023,” states the simplified debt dynamic arithmetic of R.

The letter was published a few days after official statistics revealed that the fiscal deficit at the end of May was 12.3% of the yearly budget objective for 2022—2023, mostly as a result of greater spending.

According to ING, the reduction in the debt-to-GDP ratio should be enough for Fitch to maintain India’s credit rating at BBB- and, if necessary, remove the negative watch.

The statement said, “It is crucial that India maintains its investment-grade rating since it is still anticipated that India would eventually be included in global bond indices.

The COVID-19 region’s shattered economy is recovering, but monetary tightening by central banks, the conflict in Russia and Ukraine, supply-side issues, and the prospect of a downturn have cast doubt on the process.

The government recently slapped a windfall tax on gasoline businesses and exporters in an effort to balance the budget after slashing municipal taxes on fuel to slow the rise in inflation. The objective for the budget deficit will be fulfilled, according to a top official in the finance ministry.

Following the epidemic, the fiscal deficit grew significantly, but the government is working to progressively reduce it. ING anticipates that India’s nominal GDP would surpass the Rs 2,58,00,000 crore forecast for 2022—23 and anticipates that the Reserve Bank of India will keep raising interest rates throughout the rest of the year.

The so-called real GDP is the gross domestic product that has been corrected for inflation, whereas the nominal GDP is the gross domestic product at current market prices. The fiscal deficit as a percentage of GDP is determined using the nominal GDP.

Bond rates are expected to gradually decrease over the course of this year’s second half as concerns about a worldwide recession grow. While there is little chance of a significant decrease in inflation until 2023–despite the fact that it has been over the RBI’s target range for some months–India may see a few months of unusually low food costs. This will ease pressure on prices elsewhere, according to ING.