Centre’s fiscal deficit may skyrocket to 9% of GDP this year; these twin issues weigh on govt’s coffers

By: |
September 29, 2020 6:33 PM

While the budgeted fiscal deficit in the year was Rs 8 lakh crore, an additional deficit of Rs 9.8 lakh crore is projected due to various shortfalls and expenditure.

fiscal deficit, government's expenditure, states finances, revenue, shortfallGiven the fact that states have been at the forefront of the control and fight against the pandemic, their fiscal deficit is projected to increase by as much as 1.6% over the budget estimate of 2.8% to 4.4% of the country’s GDP.

India’s fiscal deficit may touch 9 per cent of GDP in the current fiscal year 2020-21, on the back of the twin issues of revenue loss and higher spending due to the pandemic. The fiscal deficit in the current year is estimated to be Rs 17.8 lakh crore, according to a report by Care Ratings. While the budgeted fiscal deficit in the year was Rs 8 lakh crore, an additional deficit of Rs 9.8 lakh crore is projected due to various shortfalls and expenditure. It is estimated that the government will bear a burden of Rs 5.9 lakh crore as a shortfall in tax revenue and Rs 3.8 lakh crore as an additional expenditure. 

Given the fact that states have been at the forefront of the control and fight against the pandemic, their fiscal deficit is projected to increase by as much as 1.6 per cent over the budget estimate of 2.8 per cent to 4.4 per cent of the country’s GDP. The states have the onus to effectively implement restrictions to contain the spread of coronavirus while keeping the wheels of the economy moving. 

Also Read: India may soon store crude oil in US, other foreign nations; invites cos to enhance domestic capacity

Taken together, the combined fiscal deficit in the current year could increase by as much as 7 per cent over the budget estimate. Care Ratings has expected the combined fiscal deficit to be around 13 per cent, that too, when the Rs 97,000 cr of direct borrowing by states is not being treated as fiscal deficit.

Meanwhile, the states and UTs had presented their budgets for 2020-21 before the coronavirus pandemic spread in the country. Therefore, the projections made were based on normal conditions and positive economic growth during the year. However, given that economic activity is unlikely to revert to pre-lockdown levels in the current financial year, there would be a divergence in revenues and expenditure of states from what was budgeted.

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