Govt's fiscal deficit likely to be around 9% in FY21, say experts

Data to be released by month-end; FY22 gap may widen to 7.15% against BE of 6.8%, say experts

The government’s fiscal deficit for the financial year ended March 2021 (FY21) is expected to be around 9 per cent of gross domestic product (GDP) compared to the revised estimate (RE) of 9.5 per cent.

However, in the current financial year (FY22, or April 2021-March 2022), the gap could be higher than the budgeted 6.8 per cent as spending is expected to go up and GDP bound to shrink owing to the second wave of Covid, say experts. 

Sources in the government say while revenue collections have exceeded RE in FY21, so has expenditure, indicating the fiscal deficit is likely to be lower than RE. 

This was evident in the February numbers which worked out to be 76 per cent of the RE, according to the data released by the Controller General of Accounts (CGA), which is likely to release data for March by the end of May.

For FY22, the Centre is targeting a fiscal deficit of 6.8 per cent, to be gradually brought down to below 4.5 per cent in the next four fiscal years (by FY26). However, economists expect it to be higher as they believe GDP growth may be lower than earlier estimated.  

“The economic conditions today are very volatile with the pandemic presenting gloomy signs as lockdowns become more intense,” said Madan Sabnavis, chief economist at CARE Ratings. “There is uncertainty on the former which has a bearing on the latter. Therefore, the environment remains unstable.”

He pointed out that the government has not announced any major relief measures except for the food relief programme as there is no national lockdown.

“States, too, have not provided any relief as the tenure of the lockdowns is uncertain. We have reworked our numbers and believe that the lockdowns will continue through June. There will be some easing in July in selected states but on the whole August seems to be the time when the economy can be closer to the pre-second wave situation.”

He predicted that GDP growth will be 9.2 per cent with a downward bias. “This also means that the fiscal numbers will be affected and we expect the fiscal deficit ratio to be 7.15 per cent for the year as against 6.8 per cent budgeted due to limited relief announced and decline in tax collection as GDP growth gets corrected.” 

The downward bias is more as the number of infections remains high and sticky. Even Maharashtra which has seen containment has still registered around 60,000 cases for the last 40 days. There is no reason for optimism of caseloads to come down sharply like last year. Therefore, the downward bias remains, Sabnavis added. 

However, the fiscal deficit in FY21 would be slightly lower than revised estimate of 9.5 per cent, but that wouldn't be on account of growth buoyancy but due to various administrative changes in the goods and services taxes (GST) which had led to good collections, said Devendra Kumar Pant, chief economist, India Ratings and Research.  

According to Pant, some of these changes had plugged the loopholes particularly in claiming input credits. Even direct tax collections have done well and surpassed the RE. Revenue expenditure, on the other hand, has shown slackness up to February. “The only difference was on the capex side, that too due to the loan scheme for the state government for investment,” he said.  

The second half of FY21 has seen some green shoots in the economy as economic activity restarted after being shut for some months.

The net revenue collection is Rs 10.71 trillion, which is 108.2 per cent of the RE, according to the provisional figures of FY21, while GST collections was Rs 5.48 trillion, 105 per cent of RE.

GST mop-up exceeded the Rs 1-trillion mark each month for the last six months. 

In the Budget, the government had revised the fiscal deficit projections for FY21 to Rs 18.48 trillion, or 9.5 per cent of GDP, from the budget estimate of Rs 7.96 trillion, or 3.5 per cent of GDP, mainly on account of additional outgo to deal with the pandemic.

According to the CGA data, the fiscal deficit at the end of February was Rs 14.05 trillion, or 76 per cent of RE. This compares to 135.2 per cent during the corresponding period of the previous financial year.

The government’s total receipts during April-February was Rs 14.1 trillion, or 88.2 per cent of RE presented in the Budget on February 1. The collection was 74 per cent of the estimate in the year-ago period.

According to the CGA, the Centre’s total expenditure was Rs 28.1 trillion, or 81.7 per cent of RE. During the same period of the last financial year, it was 91.4 per cent of RE.