The Budget has taken a big step towards displaying a transparent set of numbers
A welcome change in the Union Budget of 2021-22 compared to the past is the accent on transparency and credibility. There have been questions regarding the underlying growth assumptions of past Budgets, the practice of shifting large expenses off the Budget, show a lower borrowing number by making public sector enterprises borrow on the Centre’s behalf and so on. Finance Minister Nirmala Sitharaman has set a good precedent in many of these contentious areas this year, and it is hoped that these practices are here to stay. A significant change from the past is the conservative assumption of nominal growth of 14.4 per cent for FY22, which is more than 100 basis points lower than that indicated in the Economic Survey and the recent IMF projection. This makes the underlying revenue growth numbers realistic and probably gives the Finance Minister the chance to over-achieve the Budget projection.
The fallout of the Centre’s resolve to bare-all has been the enormous government borrowing figure for FY22 at ₹12.05-lakh crore. The fiscal glide path is further indicating that the deficit will move lower to 4.5 per cent of GDP only by 2026, implying elevated borrowing in the interim period. This is not going too well with bond markets as seen in the hardening 10- year bond yields. The RBI will have to deploy all the tools in its arsenal to keep the yields under check.