InvestorQ : How is the fiscal deficit shaping up for the current financial year FY21?
diksha shah made post

How is the fiscal deficit shaping up for the current financial year FY21?

vidhya Laxmi answered.
1 year ago

There was never any doubt that fiscal deficit would spill over on the upside, considering that government allocations were rising but revenues were either static or falling. In fact, if you look at the figures for the first 8 months ending November 2020, India’s fiscal deficit threatens to pose a real major challenge to the policy makers.

For example, the fiscal deficit stood at 135% of the full-year Budget target of Rs.800,000 crore for FY21. One can imagine how much it could be by the time the year ends, and if most of the divestment and tax revenues do not fully materialize. Ironically, the revenue deficit also touched 140% of the full year targets by November.

One thing that has got badly hurt by this spurt in deficit is the spending by the government of India. For example, only 58.5% of the capital expenditure budget and 62.7% of the overall budgeted expenditure was spent by November. Experts have pointed out that the fiscal deficit is not so much due to higher expenditure as it is due to revenue constriction.

There are different estimates being thrown about for the full year fiscal deficit. But the consensus ranges from 7% to 7.5% GDP in FY21. It could get worse if the divestment projections do not add up to what the government has been hoping for. Tax and non-tax revenues were way down in FY21 and there looks to be little respite between now and March.