FREE

Indian Budget Focuses On Growth And Mild Fiscal Consolidation

The Indian Finance Minister presented the second post-pandemic budget on February 1, 2022 amidst a challenging macro-economic backdrop. Economic activity continues to rebound but the recovery is uneven and unemployment remains high. Supply chain disruptions have pushed up food and raw material costs while global financial conditions could tighten as the U.S. Federal Reserve raises rates. That said, the budget balances growth and fiscal consolidation and is a continuation of last year’s budget with a strong focus on capital expenditure and conservative fiscal arithmetic.

The budget aims to boost growth with a focus on four key pillars of development – infrastructure, inclusive development, productivity enhancement, and energy transition. In addition, the budget announced several new initiatives, including the launch of a digital rupee, issuance of sovereign green bonds, and further support to the digital payment ecosystem. DBRS Morningstar expects these measures to support a continued economic recovery. In the IMF's WEO (January 2022), India’s growth rate is projected to be 9% in 2022 and 7.1% in 2023.

Although the budget has attempted to address the problems of a two-speed recovery by extending credit guarantees to small businesses, rising unemployment remains an area of concern. In addition, the Budget did not provide a roadmap towards inclusion in the global emerging market bond indices, which coupled with rising global yields, continuation of high oil prices and a high borrowing program has resulting in Indian bond yields edging higher.

Key Highlights Include:

-- The budget is a balancing act between growth and fiscal consolidation

-- The continuation of capex driven growth bodes well for strengthening India’s post pandemic economic recovery

-- India's public debt levels are expected to stabilize in the near term


“The budget is a balancing act between growth and fiscal consolidation” says Rohini Malkani, Senior Vice President, Global Sovereign Ratings Group at DBRS Morningstar. “The continuation of capex driven growth bodes well for strengthening India’s post-pandemic economic recovery.”