Any FM strives to keep fiscal deficit
under check. However, given the circumstances the government will have to loosen the purse strings. “FM needs to keep deficits higher even in FY22 and any attempts to rein in deficit below 4 per cent, at the cost of growth spends or by raising taxes could raise concerns on the sustenance of recovery,” the brokerage says.
‘Capex’ has become the buzz-word ahead of the Union Budget.
Bernstein believes the FM will have to up the ante on this upfront. “Government needs to peg a higher growth target for capex
– around 30 per cent YoY for a meaningful impact…. Subsidies must be controlled, as they are now similar to capex
in terms of GDP intensity – however elevated healthcare spends and need for support to the poor reduces flexibility.”
While the government will have to do the heavy lifting when it comes to the kick starting the investment cycle. Any push to stimulate private spending will be welcomed by the markets. “While there will be attempts to garner private funding in infra, policies should be created to help protect downside for private sector investments. We also expect the government to share a bit more on the PLI scheme
announced earlier, although it has limited capex
Loan growth for the banking system has slowed down considerably. A key for the economic revival will be higher credit offtake. Recapitalizing state-owned banks and addressing NPA woes will cheered by the market. “Bad bank concept has resurfaced – relevant, in our view, as it can accelerate decision making, as currently the administrative process with need for several approvals from various banks slows down the process of NPA resolution.”
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