Fiscal deficit to decline to 6.2% of GDP in FY22 from 7.0% in FY21: India Ratings

India Ratings and Research on January 28 said it expected the FY22 fiscal deficit to be 6.2 percent of GDP.

As Finance Minister Nirmala Sitharaman gears up to present the Budget 2021 amid the ongoing COVID-19 pandemic and the likelihood of the Indian economy contracting 7.7 percent year on year in FY21, the government finances need to be steered in a way that puts the economy back on track, India Ratings and Research (Ind-Ra) said.

Therefore, as the year progressed, the government announced a number of policy measures under Atmanirbhar Bharat package1.0, 2.0 and 3.0 to support the economy. The package was a combination of grant, equity and liquidity measures by the central government, state governments and the Reserve Bank of India (RBI), Ind-Ra said.

The actual fiscal impact of the economic packages works out to be about Rs 3.5 trillion (1.8 percent of GDP), against this backdrop, it was a foregone conclusion that FY21 would have a significant slippage from the budgeted fiscal deficit of 3.5 percent of GDP, the agency said.

The government’s fiscal deficit at the end of November 2020 was Rs 10.76 trillion compared to the budget estimate of Rs 7.96 trillion, the revenue receipts at end-November 2020 were Rs 8.13 trillion, the lowest in the last three years and only 40.2 percent of FY21 while the tax revenues were 42.1 percent of FY21 and non-tax revenues were much lower at 32.3 percent.

Ind-Ra estimates it to come to 7.0 percent of GDP in FY21, it said.

The rating agency said it expects the FY22 fiscal deficit to be 6.2 of GDP. Expenditure on vaccination will be a key element of revenue expenditure in FY22 which could be shared among the central government, state governments and households, it said.

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