Confident of reducing fiscal deficit to 4.5% of GDP by FY26: Expenditure secy

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February 7, 2021 2:23 PM

The government is confident of lowering the fiscal deficit to 4.5 per cent of GDP by 2025-26 fiscal, considering a nominal GDP growth of 10 per cent every year, Expenditure Secretary T V Somanathan has said.

fiscal deficit, expenditure Secretary, National Disaster Response Force, nominal GDP growth, excess of government expenditure over its revenues --For the next 2021-22 fiscal, the deficit has been pegged at 6.8 per cent of GDP

The government is confident of lowering the fiscal deficit to 4.5 per cent of GDP by 2025-26 fiscal, considering a nominal GDP growth of 10 per cent every year, Expenditure Secretary T V Somanathan has said.

India has exceeded its fiscal deficit target of 3.5 per cent in the current fiscal by a wide margin due to higher spendings to stimulate the economy amid the pandemic. The fiscal deficit — the excess of government expenditure over its revenues — has been pegged at 9.5 per cent of the gross domestic product (GDP) in the current fiscal ending March 31, as per the revised estimate.

For the next 2021-22 fiscal, the deficit has been pegged at 6.8 per cent of GDP, which will be further lowered to 4.5 per cent by the fiscal ending March 31, 2026.

“We are very serious about bringing it (deficit) down. 9.5 per cent to 6.8 per cent is very much achievable and after that if you look at 10 per cent (nominal) growth per annum, if you look at a tax buoyancy of 1.1 per cent and if you look at the fact that such extraordinary expenses will not be there in the future years, every year cannot be a COVID year, I think we are very confident of reaching below 4.5 per cent,” Somanathan told PTI.

He said the fiscal deficit target has been set keeping in mind the estimate of a 5-6 per cent real GDP growth over next four years, while nominal GDP will be at least 44 per cent higher than what it is today.  “Let us assume (real GDP) growth to be 5-6 per cent, and inflation at 4-5 per cent, we will get to 10 per cent (nominal growth). Most likely we will get to 11 per cent (nominal growth). So 44 per cent growth in GDP denominator is almost certain. So on that GDP our deficit will be 4.5 per cent. I think we are quite confident we will reach it,” he said.

In its post budget commentary, S&P Global Ratings had said India’s budget for the next fiscal is an effort of the government to shore up economic recovery, but fiscal consolidation would pose a stout challenge to policymakers going forward.

“The prospect of consolidation from these heights, while maintaining a significant degree of support for the economy, poses a stout challenge to India’s policymakers,” S&P had said.

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