How do you see the government spending in the Union Budget to be announced on 01-Feb? Will it be high considering that revenues have fallen short?

India is expected to exceed its current year spending budget of $415 billion in the coming budget estimates. That is what has been indicated by the finance minister. The government is expected to prioritise infrastructure projects and is also likely to expand its health budget significantly as the COVID inoculation drive takes off.

How will the funding come from? The government plans to collect close to $40 billion in the next fiscal through asset sales for funding these massive projects. These include divestments as well as strategic divestments. This year it is likely to fall grossly short of its divestment target of Rs.210,000 crore with LIC unlikely to happen.

The Union Budget on 01-Feb is likely to focus on reviving businesses and providing the soothing touch to the millions who lost their jobs in the pandemic. Government had clarified ahead of the budget that growth and infrastructure spending were their main priorities compared to fiscal deficit math. Hence it would be pump priming at all costs.

But that would be easier said than done. India has a tough task as the fiscal deficit is expected to breach 8% of GDP this year due to a revenue shortfall of Rs.500,000 crore. With GDP contracting 23.9% in Jun-20 and 7.5% in Sep-20; pump priming appears to be the only option. But that come with risks on the rupee and sovereign rating front.