New seven per cent fiscal deficit forecast shows India’s economic sinkhole is getting deeper

New seven per cent fiscal deficit forecast shows India’s economic sinkhole is getting deeper

NEW DELHI:  Given the bleak revenue collection scenario amid Covid-19 induced economic disruption and higher expenses to boot, the Central government’s fiscal deficit is set to widen to 7% in the current financial year, says a new report. This is double the government’s target for FY21. 

The situation could be exacerbated by the fact that states have been allowed to borrow more to make up for the shortfall in GST revenue.

The consolidated fiscal deficit of the Centre and states “could reach 12% of the GDP”, warns the report by Brickwork Ratings.

Fiscal deficit is the difference between the government’s total income and total expenditure. 

The government is facing a double whammy. On the one hand, the nationwide lockdown imposed to arrest the spread of the coronavirus has badly hit revenue collection.

On the other, expenditure shot up, taking deficit to record levels of over Rs 6.62 lakh crore in the April-June quarter, which was 83.2% of the target for the whole financial year.

Fiscal deficit had already reached a seven-year high at 4.6% of the GDP in 2019-20. Going forward, the numbers don’t look promising, as GST shortfall is expected at Rs 3 lakh crore while borrowing could be higher than expected.

“Our baseline estimate is that the fiscal deficit will surge to Rs 13 lakh crore in FY2021 from the budgeted level of Rs 8 lakh crore,” says Aditi Nayar, principal economist at ICRA.

The latest report by the International Monetary Fund pegs India’s fiscal deficit at 7.4% of the GDP in 2020.

Earlier this month, India Ratings had forecast the fiscal deficit of the Centre and state governments will be 12.1%. Emkay Global Financial Services pegs fiscal deficit to rise to over 6.8% of the GDP.


  • Govt may face fund shortage to fulfil the budgeted expenditure.
  • This could cause a huge cut in capital expenditure as well as centrally sponsored schemes.

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