Budget 2022: What will be the impact on market and economy
Premium- Union Minister Nirmala Sitharaman is all set to present Budget for the next financial year tomorrow at 11 am
Union Minister Nirmala Sitharaman is all set to present Budget for the next financial year tomorrow at 11 am. The Budget comes amid disruptions caused by the Omicron variant of coronavirus.
Ahead of the economic survey today, markets have opened higher with equity benchmark Sensex surging 712 points in opening trade. Finance Minister Nirmala Sitharaman will present the Economic Survey 2021-22 later in the day.
The impact of Budget on the markets and economy
Indian markets have corrected over the last week amid investor concerns over US Fed's policy decision and the tensions in Ukraine and the Middle East. In this context, investors will be looking for a direction and hoping to hear some major positive announcements that will provide the much-needed fillip to the domestic markets.
All eyes will be on the fiscal deficit numbers that the government will be estimating for the next financial year and the extent to which the government is willing to spend to shore up the economy.
There is general consensus among analysts that Budget should focus on boosting overall demand, from rural consumption in particular, and invest more in infrastructure even at the cost of fiscal goals.
According to analysts, the Union Budget may peg FY23 fiscal deficit target above 6% of gross domestic product (GDP), as the country enters the third year of pandemic.
Stress because of Covid-19 had forced the government to raise the FY22 fiscal deficit target to 6.8% from 3%, set under the Fiscal Responsibility and Budget Management (FRBM) Act, 2003. Finance minister Nirmala Sitharaman had said the government planned to narrow down the deficit to 4.5% by FY26.
The way the governments invests the funds affects the fiscal deficit. This in turn influences the money supply and also the economy and interest rates. If the interest rates are high, the capital cost of the industry increases which in turn lowers the profits earned and hence there can be a decrease in the stock prices.
The fiscal measures that are taken up by the Indian government can show an effect on the expenditure of the common man. For example, if there are any changes in taxation, then the disposable income would decrease or increase and this will, in turn, reduce or increase the demand for various goods.
The production in the economy is dependent on whether there is enough demand in the market, which in turn affects the economic growth.
Non-planned expenditure like defense and subsidies will also show an effect on the economy.
On the disinvestment front, the FY22 budget laid massive thrust with a target of ₹1.75 trillion. However, the government has been able to meet barely 5% of the target. According to a Morgan Stanley note, the total actual divestment receipts as of December was ₹9,360 crore, which is a mere 5.4% of the budget estimates.
The markets will also eyeing the disinvestment numbers for the next year, which will show whether the government will be able gather revenues to spend in different areas of the economy.
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