The Financial Express

India's fiscal deficit likely to be over 7.0pc in FY21

| Updated: January 14, 2021 11:41:12

A cashier checks Indian rupee notes inside a room at a fuel station in Ahmedabad, India, September 20, 2018 - Reuers file photo A cashier checks Indian rupee notes inside a room at a fuel station in Ahmedabad, India, September 20, 2018 - Reuers file photo

India’s fiscal deficit for year ending in March is likely to be over 7.0 per cent of gross domestic product, reports Reuters accrediting three sources, as revenue collections suffered from a lockdown and restrictions to rein in the spread of COVID-19.

India’s government had projected a fiscal deficit of 3.5 per cent of GDP for the current year last February. It estimated government borrowing of 7.8 trillion rupees, later revised to 12 trillion rupees, to provide relief to millions of people and businesses hurt by the pandemic.

A fiscal deficit of more than 7.0 per cent would be higher than some private economists have projected. Many of them forecast an uptick in tax collections in the second half of the fiscal year. But government sources say the uptick won’t be enough to compensate for earlier losses.

“The fiscal deficit will be bigger than what is estimated by some ... Our revenue collections suffered due to the complete lockdown in the first three months and that is hard to recover,” said a source with direct knowledge of budget discussions. “What we’re looking at is a 7.0 per cent plus.”

Two of the sources said the revenue shortfall from tax and divestment of state-run companies could be as much as 7.0 trillion rupees.

A finance ministry spokesman declined to comment on the matter. The government has yet to release any revised fiscal deficit estimates.

The pandemic and stringent lockdown measures imposed by India in the early stages hit India hard. Asia’s third largest economy recorded its first-ever recession with a contraction of 23.9 per cent in the April-June quarter and a 7.5 per cent fall in the September quarter.

India is set to release its first advance estimates of GDP for the 2020/21 fiscal year later on Thursday.

Another senior government source said government finances were in poor condition because of the shortfall in tax receipts, but the government has limited room to cut spending as revival of the growth remained top priority.

“We could see the worst-ever fiscal deficit numbers in the current financial year,” said another government source with direct knowledge of budget matters, adding the fiscal deficit could touch 8.0 per cent of GDP.

The final fiscal deficit estimates will be announced by Finance Minister Nirmala Sitharaman on Feb. 1, when she presents her annual budget for the next financial year.



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