Forecast of 7% fiscal deficit
India’s fiscal deficit is expected to touch 7 per cent of GDP in the 2020-21 fiscal against the budget estimate of 3.5 per cent, with revenue collections being hit amid disruptions in economic activities because of lockdowns, according to Brickwork Ratings.
“The impact of the lockdown on economic activity shows up starkly in the trends in the central government revenue collection during the first three months of fiscal 2020-21,” the agency said in a report.
According to data released by the Controller General of Accounts (CGA), the central government’s revenue in Q1 (April-June) of the current financial year is much lower than collections for the corresponding period last year.
Revenue from income taxes (personal income tax and corporate income taxes) was lower by 30.5 per cent and the GST by almost 34 per cent during the period.
On the other hand, there is a sharp increase in expenditure (by 13.1 per cent) because of additional spending incurred to save lives and livelihoods and to provide stimulus under the Aatmanirbhar Bharat programme. “This has resulted in the fiscal deficit widening to 83.2 per cent of the budgeted target in the first quarter itself,” the agency said.
Brickwork Ratings expects the economy to gradually pick up from the third quarter of this fiscal. “Given the early signs of resumption in business activity, we expect revenue collections to reach pre-Covid levels towards the end of the third quarter, hoping that festive season demand induces consumption and spending.
“However, if the current situation prolongs further, the government may face acute burden of fund shortage to fulfil the budgeted expenditure even after considering the announced higher borrowing of Rs 12 lakh crore,” it said.