A peak level of India's public debt/GDP ratio at 91.7 per cent, near doubling of combined fiscal deficit in the aftermath of the pandemic averaging at 12 per cent, and worsening of debt sustainability indicators to the 2002 levels may be driving fiscal conservatism, JM Financial said in a report.
"However, we see greater chances of moderating fiscal support from both the Centre and the states. GoI's spending in the proportion of Budget estimates is already restrained to levels that were last seen during the peaks of the economic boom in FY07-08, the report said.
The Union Budget 2022 may bet heavily on private sector revival as we saw after 2003 even as it targets conservative spending. The risk is that premature fiscal conservatism may prove to be counter-productive if the private sector does not recover adequately enough, the report said.
The report said that FY22 fiscal management is wedged between additional spending of Rs 3 trillion on top of the budgeted Rs 34.8 tn (free food programme, Air India dues, fertiliser subsidy, MGNREGA, export arrears, etc).
JM Financial said the role of fiscal support will continue to be very crucial for India's growth if the trajectory of private consumption and private investments remains on a modest recovery path.
