You are here: Home » Budget » News
Business Standard

Budget: Govt pegs FY21 fiscal deficit at 9.5%; sets target at 6.8% for FY22

In FY21, the gap between revenue and expenditure reached Rs 18.48 trillion in the revised estimate. For FY22, the gap is expected to be Rs 15 trillion

Topics
Budget 2021 | Fiscal Deficit | Indian Economy

Shrimi Choudhary  |  New Delhi 

cash, currency, notes, funds, investment, shares, growth, profit, loss, tax, money, income, earnings, parliament, budget, spending, expenditure
The fiscal deficit, revenue and expenditure combined targets for FY22 assume a nominal GDP of Rs 222 trillion, up 14.4 per cent over the revised FY21 nominal GDP estimate

The Centre’s for the current financial year has breached all the previous estimates, and is now pegged at 9.5 per cent of the gross domestic product (GDP), compared to the budgeted estimate of 3.5 per cent.

The overhaul in the fiscal roadmap has come amidst contracting growth, weak revenue inflow and a series of medium-sized stimulus packages announced by the Narendra Modi-led government during the pandemic.

For financial year 2022, the Centre is targeting a of 6.8 per cent, to be gradually brought down to below 4.5 per cent in the next four fiscal (by FY26).

ALSO READ: Budget bets big on growth: FM squeezes subsidies, raises capex again

“At the beginning of the current financial year, the pandemic’s impact on the economy resulted in a weak revenue inflow. This was combined with high expenditure to provide essential relief to vulnerable sections of society, especially the poor, women, SCs and STs,” Finance Minister said while presenting the Union Budget. “The in revised estimate of 2020-21 is pegged at 9.5 per cent of GDP. We have funded this through government borrowings, multilateral borrowings, small saving funds and short-term borrowings,” she added.

In FY21, the gap between revenue and expenditure reached Rs 18.48 trillion in the revised estimate. For FY22, the gap is expected to be Rs 15 trillion.

Sitharaman's fiscal roadmap to FY26 is in line with the recommendations of the 15th Finance Commission, the report of which for FY22 to FY26 was also tabled along with the Budget.

“We have assessed that given the compulsions on the revenue account of the Union government, including of lending support to the Budgets of sub-national governments, they may have to follow an elevated path of fiscal deficit with a terminal year (FY26) target of 4 per cent of the GDP," the Finance Commission’s report said.

ALSO READ: Govt takes capital expenditure route to spur growth in Budget 2021

To enable the fiscal expansion, the Centre will borrow Rs 12 trillion gross in FY22. For the current year, the Centre will borrow Rs 80,000 crore more from the already revised borrowing of Rs 12 trillion.

“We plan to continue with our path of fiscal consolidation, and intend to reach a fiscal deficit level below 4.5 per cent of GDP by 2025-2026 with a fairly steady decline over the period,” the Finance Minister said. “We hope to achieve the consolidation by first increasing the buoyancy of tax revenue through improved compliance, and secondly, by increased receipts from monetisation of assets, including public sector enterprises and land.”

The fiscal deficit, revenue and expenditure combined targets for FY22 assume a nominal GDP of Rs 222 trillion, up 14.4 per cent over the revised FY21 nominal GDP estimate.

chart

“Fiscal deficit entails large government borrowing, which, along with higher permitted state deficits, will put pressure on liquidity in the coming year. This will prevail in the next few years with the government aiming at 4.5 per cent by FY26,” said Madan Sabnavis, chief economist, Care Ratings. “However, since the idea is to spur growth and keep aside fiscal prudence for now, it looks that the Centre is not in a hurry to tackle the budgetary deficit.”

To enable the fiscal deficit beyond the permissible limit under the present legislation, the government will introduce an amendment to the Fiscal Responsibility and Budget Management (FRBM) Act in the Finance Bill.

“We know that the FRBM Act mandates fiscal deficit of 3 per cent of GDP to be achieved by March 31, FY21. The effect of this year’s unforeseen and unprecedented circumstances has necessitated the submission of a deviation statement under various clauses of the FRBM Act. Towards achieving central government fiscal deficit along the broad path, I will be introducing an amendment to the FRBM Act,” Sitharaman said.

This is the second time the government has changed the recommendations of the N K Singh Committee on fiscal consolidation. Earlier, it had targeted bringing down the fiscal deficit to 3.1 per cent of GDP by 2022-23 (FY23). The FY21 Budget used the escape clause to the maximum to widen the Centre’s fiscal deficit by 0.5 percentage points beyond the fiscal consolidation road map for 2019-20 (FY20) and FY21.

However, all previous bets were off in the wake of pandemic. India’s fiscal deficit widened to 145.5 per cent of the full-year Budget estimation by December 2020, according to official figures.

The FRBM Act initially sought that the government rein in its fiscal deficit to 3 per cent of GDP by 2008-09. The Budget that year did target reducing it by 2.5 per cent. However, after the Lehman crisis and the fiscal expansionary policies by the Centre, the fiscal deficit was over 6 per cent of GDP that year. After that, a 3 per cent deficit target remained elusive.

The N K Singh panel, constituted to review fiscal consolidation, wanted the deficit to be 3 per cent by 2017-18 and kept at that level for the next two years — and to be brought down to 2.5 per cent by FY23.

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Tue, February 02 2021. 00:52 IST
RECOMMENDED FOR YOU