Budget 2022: India Pegs FY23 Fiscal Deficit At 6.4%, Gross Borrowings At Rs 14.95 Lakh Crore

India's fiscal deficit target for the upcoming fiscal has been set lower than the ongoing financial year's.

The country’s fiscal deficit settled at 6.9% of the GDP in 2021-22 and will be targeted at 6.4% in the upcoming fiscal, Finance Minister Nirmala Sitharaman said in her Budget 2022 speech.

The fiscal deficit for the ongoing fiscal is still higher than the 6.1% projected by a Bloomberg poll of economists.

The central government had pegged the fiscal deficit at 6.8% for FY22 in the last budget. The year before, because of the onset of the Covid-19 pandemic, fiscal deficit shot up to 9.5%—the highest since liberalisation in 1991.

The target for next year is consistent with the broad path of fiscal consolidation announced last year, to reach a fiscal deficit of 4.5% by 2025-26, Sitharaman said.

The revised estimate for expenditure, according to her, is at Rs 37.7 lakh crore for FY22.

Total expenditure for FY23 is estimated at Rs 39.45 lakh crore, while total receipts, other than borrowing, are seen at Rs 22.84 lakh crore, she said.

The announced deficit target suggests that the government is relying on strong economic growth to help drive fiscal consolidation in light of the large bump in capital expenditure, Christian de Guzman, senior vice president, sovereign risk group at Moody’s Investors Service, said in an emailed statement. This poses some uncertainty given the prevalence of pandemic-related risks, he said.

According to Suman Chowdhury, chief analytical officer at Acuité Ratings & Research, the higher-than-budgeted print reflects the uncertainty on the LIC initial public offering and the back-loaded revenue and capital expenditure in FY22. "With a significant jump in outlay for capex in FY23, the reduction in fiscal deficit is budgeted to be only moderate, implying a significant quantum of gross government borrowings as in the current year and will maintain the firmness in bond yields which have already seen a spike."

Government FY23 Borrowings

Even as fiscal deficit was targeted lower, the government borrowings were projected to be higher than expectations.

India is likely to borrow Rs 14.95 lakh crore via bonds in FY23, according to Budget 2022 documents. A survey of 18 traders and economists had pegged government gross borrowings at Rs 13 lakh crore.

Net borrowings for FY23 were seen at Rs 11.09 lakh crore.

The benchmark 10-year bond yield spiked as much as 20 basis points to 6.89%, the highest since July 1, 2019.