India fiscal deficit set to cross 7.5% of GDP
Moderate revenue collection due to Covid- 19 pandemic cited as main reason
We assess that the government may signal amove towards restoring fiscal consolidation in a limited way in budget estimates for 2021- 22.” DKSrivastava | Chief policy advisor, EY
India’s fiscal deficit is expected to be around 7.5 per cent of the GDP for the current fiscal owing to moderation in revenue collection due to the Covid- 19 crisis, experts said.
This would be a 100 per cent jump from the Budget estimate of 3.5 per cent of GDP pegged for the current fiscal. The government had pegged the fiscal deficit at Rs7.9 trillion or 3.5 per cent of the GDP in the Union Budget 2020- 21, which was presented by Finance Minister Nirmala Sitharaman in February 2020. The finance minister in Budget 2020- 21 had pegged the gross market borrowing, which is also a reflection of fiscal deficit, at Rs 7.8 trillion for the current fiscal.
Ballooning debt
Hard- pressed for funds to combat the Covid- 19 crisis, the government had in May increased its market borrowing programme for the current financial year by more than 50 per cent to Rs 12 trillion.
According to ICRA’s Principal Economist Aditi Nayar, the fiscal deficit is expected to touch 7.5 per cent for the fiscal ending in March. “We estimate the fiscal deficit at Rs 14.5 lakh crore or 7.5 per cent of the GDP,” she said.
Small savings and treasury bill will make up the balance apart from government borrowing programme of Rs 12 lakh crore, she said. Nominal GDP or GDP at Current Prices in the year 2020- 21 is likely to attain a level of Rs 194.82 lakh crore, as against the provisional estimate of GDP for the year 2019- 20 of Rs 203.40 lakh crore, released on May 31, 2020.
The growth in nominal GDP during 2020- 21 is estimated at (-) 4.2 per cent. Nominal GVA at Basic Prices is estimated at Rs 175.77 lakh crore in 2020- 21, as against Rs 183.43 lakh crore in 2019- 20, showing a contraction of 4.2 per cent.
Larger revenue shortfall
The central government may have to incur a larger fiscal deficit than what was earlier announced at Rs 12 lakh crore, said D K Srivastava, chief policy advisor, EY India.
“We assess that the government may revise upwards its borrowing target soas toexceed 7 per cent of 2020- 21 nominal GDP and signal a move towards restoring fiscal consolidation in a limited way in the budget estimates for 2021- 22,” he said.
The Centre’s fiscal deficit had widened to 135 per cent of the full- year’s Budget Estimates ( BE) at Rs 10.7 lakh crore in the first eight months ( AprilNovember) of FY’ 21. It is 33 per cent higher than the corresponding period last year.
Breaching budget target
The fiscal deficit had breached the Budget target in July itself as the economy faced the most stringent lockdown in the first quarter to contain the outbreak of the coronavirus pandemic. The government’s total receipts stood at 37 per cent of the budget estimate 2020- 21 till the end of November 2020.
These included around Rs6.88 trillion tax revenue net to government, Rs1.2 trillion of non- tax revenue and Rs18 billion of non- debt capital receipts. Non- debt capital receipts consist of recovery of loans and disinvestment proceeds.