India’s FY21 fiscal deficit likely to be double of budgeted target

The revenue gap will continue to be high, despite high-frequency indicators showing a turnaround forcing India to end the year with a higher than anticipated fiscal gap of 3.5%. Where India had projected a fiscal deficit of 3.5% of Gross Domestic Product for the current year last February it’s likely to end up over 7% as revenue collections suffered from lockdown and restrictions to rein in the spread of COVID-19.

The estimated government borrowing of 7.8 trillion rupees increased to 12 trillion rupees, to provide relief to millions of people and businesses hurt by the pandemic.

Reuters reported that while many private economists forecast an uptick in tax collections in the second half of the fiscal year, the 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, according to Reuters.

India, being Asia’s third-largest economy recorded its first-ever recession with a contraction of 23.9% in the first quarter of the current fiscal year and a 7.5% fall in the second quarter because of the pandemic and stringent lockdown measures imposed by the country.

Another government source said “We could see the worst-ever fiscal deficit numbers in the current financial year,” adding that the fiscal deficit could touch 8% of the GDP.
The final fiscal deficit estimates are yet to be announced by Nirmala Sitharaman on Feb. 1, when she will present her annual budget for the next financial year.