Indian Prime Minister Narendra Modi's government is winning rare plaudits for having delivered a budget that is transparent and prudent, coming amid a coronavirus-led economic slump, despite a record fiscal deficit.
While budgets in prior years have been criticized for underplaying the extent of the fiscal deficit by using off-balance sheet borrowings, and often overly aggressive revenue assumptions, Finance Minister Nirmala Sitharaman's 2021/2022 budget drew a realistic picture, economists said.
"The finance minister made the right pronouncements," Yuvika Singhal, an economist at QuantEco Research, said.
Sitharaman, who last month vowed to deliver a "budget like never before", pegged the current year's fiscal deficit at 9.5% of gross domestic product, and set a fiscal deficit target of 6.8% of GDP for the next year.
She also put off plans to bring down the fiscal deficit to 3% of GDP at least for the next 5 years, setting the country up for a high spending path.
Yet, she risks very little threat of a sovereign rating downgrade and Moody's said that the government had been "prudent" and conservative with revenue projections and growth estimates. It said that the final fiscal deficit could be smaller than that which is being projected.
While UBS praised Sitharaman for treading a path of fiscal "aggression", India's largest private sector lender HDFC Bank dubbed the budget as the "Queen's Gambit".
Still some critics say that while the budget does give impetus to infrastructure and health expenditure it offers little to those who are still reeling under the impact of the recession.
"The situation called for bold measures that serve the dual purpose of putting money into people's pockets and stimulating the economy. Few measures of this sort can be found in the budget," said economist and professor Jean Dreze.
But finance ministry officials said an investment-led revival would push demand without stoking inflation risks.
The finance ministry doubled spending on health and raised capital spending for asset creation by 34.5% to 5.54 trillion rupees for the fiscal year that starts on April 1.
Ministry officials said that keeping a conservative revenue outlook would lead to higher receipts and create room for more spending.
The budget was also criticized for not announcing relief for the sectors that were hardest hit by the coronavirus, such as aviation and hospitality.
Sitharaman has pegged India's GDP projection for 2021/22 at around 10.5%, which is lower than most market estimates, including from the International Monetary Fund that sees Asia's third-largest economy growing at 11.5%.
She has also estimated 2021/22 nominal GDP, which includes inflation, at 14.4% and estimated tax buoyancy at almost the same rate, even though India's tax growth typically is 4-5 percentage points over nominal growth.
"The GDP growth and revenue are very realistic, even conservative. The likelihood of over-performance on revenues and on fiscal deficit are better than they have been for years," Arvind Virmani, a former chief economic adviser to the government, said.
Sitharaman also projected a modest privatisation target of 1.75 trillion rupees and announced an asset monetization plan without accounting for any receipts, despite having a strong pipeline for privatisation.
Sitharaman also did not raise any taxes to fund the expenditure programme, as this would nullify the expansionary effect of the spending, HDFC Bank's Abheek Barua said. Instead, she chose high market borrowing of 12.06 trillion rupees for the next fiscal year.
"This gamble was not for the faint-hearted," Barua wrote in his note.