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Fiscal deficit overshoots budget target in July on lower revenue collection

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India’s fiscal deficit overshot the FY21 budget estimate to hit Rs 8.2 lakh crore, or 103%, in the first four months after the Covid-19-induced economic slowdown hurt revenue flows.

Total revenue receipts stood at Rs 2.27 lakh crore, or 11% of the budgeted estimate, while the government’s expenditure up to July stood at Rs 10.5 lakh crore. Government spending up to July was at the same level as a year earlier.

Total tax receipts stood at Rs 2.02 lakh crore, which was 12.4% of the budgeted estimate. The shortfall would be hard to recoup and could possibly increase over time as economic recovery gets prolonged, experts said.

“Out of the targeted Rs 16.35 lakh crore of tax revenue, there could be a shortfall of around Rs 2.9-3 lakh crore this year, which will pressurise the deficit,” said Madan Sabnavis, chief economist at CARE Ratings.

The government had set the fiscal deficit for FY21 at Rs 7.96 lakh crore, or 3.5% of GDP. Most economists expect it to be higher on account of increased spending and GDP shrinkage.

Some private economists pegged the FY21 fiscal deficit at between 6.5% and 7.5%. India’s GDP contracted 23.9% in the first quarter of the current year.

Fiscal

The fiscal deficit – shortfall in revenue compared with expenditure – stood at 77.8% of the annual target during the corresponding period of FY20. The gap overshot the annual target in October last year.

Rating company ICRA expects the Centre’s net tax revenue, non-tax revenue and disinvestment proceeds to together trail the budgeted level by Rs 6 lakh crore.

“Taking into account the fiscal support announced by the GoI under the Aatma Nirbhar Bharat Abhiyan and assuming moderate savings from the expenditure management measures that have been put in place, our baseline estimate is that the GoI’s fiscal deficit will surge to Rs. 13.5 trillion in FY21 (6.8% of GDP based on a nominal GDP contraction of 7.5%) from the budgeted level of Rs 8 trillion, and the Rs 9.4 trillion recorded in FY20 (provisional),” said Aditi Nayar, principal economist at ICRA.

The government almost closed the gap on its previous borrowing limit of Rs 7.8 lakh crore, with market borrowings touching Rs 7.72 lakh crore.

In May, the government revised its borrowing programme upwards to Rs 12 lakh crore for the year.

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