Centre's fiscal deficit for FY21 settles at 9.2% of GDP vs target of 9.5%

The Centre’s fiscal deficit for the financial year 2020-21 settled at 9.2 per cent of the gross domestic product, marginally below the government’s revised target of 9.5 per cent. This was on the back of better-than-expected revenue receipts with expenditure staying broadly at the level targeted in the revised estimates of the Budget.

In absolute terms, India’s fiscal deficit was Rs 18.21 trillion, about Rs 27,194 crore lower than the projected Rs 18.48 trillion, as per the provisional estimates released by Controller General of Accounts. The fiscal deficit of 9.2 per cent has been estimated based on provisional estimates for FY21 GDP of Rs 197.46 trillion.

The Centre had revised its fiscal deficit target in the Budget from 3.5 per cent to 9.5 per cent due to increased expenditure on various schemes announced by the government to tide over the Covid-19 pandemic, and a sharp shortfall in revenue receipts (both tax and non-tax).

The government’s revenue receipts were Rs 16.32 trillion, about 5 per cent higher than Rs 15.55 trillion projected in the Revised Estimates (RE). Tax revenue was 6 per cent higher at 14.24 trillion aided by an increase in excise and customs duty. Revenue from excise duty jumped 63 per cent year on year to Rs 3.89 trillion while mop up from customs duty increased over 23 per cent to Rs 1.35 trillion. Total receipts, including non-debt capital receipts, stood at Rs 16.89 trillion.

The total expenditure for the previous financial year--marred by the first wave of Covid-19 pandemic--was Rs 35.11 trillion as against estimated Rs 34.50 trillion. Although, total expenditure was higher by around Rs 61,000 crore, capital expenditure was cut by Rs 13,568 crore to Rs 4.24 trillion. Revenue expenditure was 2.5 per cent higher than FY21 (RE) at Rs 30.86 trillion.

The higher-than-anticipated tax revenues helped to curtail the Centre’s fiscal deficit for FY21 modestly below the revised target, and will come as a relief to the bond markets, said Aditi Nayar, chief economist at ICRA Ltd. Revenue expenditure exceeded the FY21 RE, on account of the back-ended release of food subsidies, she said.

The food subsidy has overshot the FY21 RE by 24.3% or Rs 1.0 trillion, which  corresponds to the prepayment of the Food Corporation of India’s liabilities in the last fiscal that had earlier been planned to be discharged in FY22, Nayar said. “This suggests a cushion of Rs 1 trillion in FY22 within the budgeted level of expenditure, which will help to absorb the already announced costs related to free food grain and fertiliser subsidy, as well as the expected enhancement in the MGNREGA allocation that may be needed following the second Covid surge,” Nayar said.

The CGA has also released data for April 2021, and the total expenditure was Rs 2.26 trillion as against Rs 3.07 trillion in April 2020. The capital expenditure was Rs 47,126 crore during the month. Total receipts during the month were Rs 1.48 trillion.

The capital expenditure recorded a healthy level, and a robust 66 per cent year on year growth, given the low base related to the lockdown that had curtailed activity in April 2020, Nayar from Icra said.

Madan Sabnavis, chief economist at CARE Ratings, said that in FY22, pressures will be there on tax revenue due to lockdown while non-tax revenue will be higher due to Rs 99,000 crore transfer by the Reserve Bank of India this year.