InvestorQ : How do the fiscal deficit numbers look for August 2020? Is it worrisome?
diksha shah made post

How do the fiscal deficit numbers look for August 2020? Is it worrisome?

ishika Banerjee answered.
3 years ago

For the time being, the government has not modified either its fiscal deficit target of 3.5% for the full year or its full year borrowing target. But that now looks like a foregone conclusion with the government already touch 109% of full year CFD target in 5 months.

With the latest data of fiscal deficit for the April – August period out on September 30, thre are clear apprehensions that the actual central fiscal deficit or CFD may more than double to above 7% of GDP in FY21.

India’s central fiscal deficit for the Apr-Aug period of fiscal year 2020-21 stood at Rs.870,000 crore or 109% of the full year target for FY21 which was pegged at around Rs.790,000 crore. This only likely to deepen with the tepid collections on the direct and indirect taxes front.

The sharp spike in the fiscal deficit has come about on the back of a sharp fall in net tax receipts which are down nearly 30% YOY at Rs.284,000 crore in the April to August period. Rating agencies like ICRA are already pegging the central fiscal deficit closer to 9% of GDP.

In fact, ICRA has gone on to warn that the combined fiscal deficit of the centre and the states could scale above 13% of GDP in FY21. This would surely raise some concerns on the rupee front and the external ratings front too.

Back in the month of May 2020, the government had increased its annual borrowing target from Rs.7.80 trillion to Rs.12 trillion. Despite the risk of spiralling fiscal deficit, the government has not hiked its borrowing target for the year, which is surprising.