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Budget 2021: FM Nirmala Sitharaman targets FY22 fiscal deficit at 6.8%, expands budget to provide stimulus

For FY21, the revised fiscal deficit estimate now stands at 9.5 percent of the GDP, from a budgeted estimate of 3.5 percent.

February 01, 2021 / 05:25 PM IST

Representative image (PC- MoneyControl.Com)

An expansionary budget drafted to provide a stimulus to the post-COVID Indian economy - that was the message behind the new budgetary targets announced by Finance Minister Nirmala Sitharaman in the Union Budget 2021 on February 1.

Presenting the budget in the Lok Sabha, Sitharaman said the Centre is targeting a fiscal deficit of 6.8 percent of gross domestic product (GDP) for FY22, which will gradually come down to below 4.5 percent by FY26. This will require amendments to the Fiscal Responsibility and Budget Management Act, she said.

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For FY21, the revised fiscal deficit estimate now stands at 9.5 percent of GDP, from a budgeted estimate of 3.5 percent. The total expenditure size for FY21 now stands at 34.5 lakh crore, up from Rs 30.4 lakh crore planned.

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"At the beginning of the current financial year, the (COVID-19) pandemic’s impact on the economy resulted in a weak revenue inflow. This was combined with high expenditure to provide essential relief to vulnerable sections of the society especially the poor, women, SCs and STs," Sitharaman said, explaining the huge fiscal slippage in FY21 due to the pandemic.

Budget Estimates_1280_002

The fiscal deficit, revenue and expenditure targets for the coming financial year assume a nominal GDP of Rs 222.87 lakh crore, a growth of 14.4 percent over the revised FY21 nominal GDP estimate.

Speaking at the post-budget press conference, Economic Affairs Secretary Tarun Bajaj said real GDP growth in the coming year is expected to be around 10 percent.

Sitharaman's fiscal glide path to FY26 follows recommendations of the Fifteenth Finance Commission, whose report for FY22 to FY26 was also tabled in the Lok Sabha along with the Budget.

"We have assessed that, given the compulsions on the revenue account of the Union government, including of lending support to the Budgets of sub-national governments, they may have to follow an elevated path of fiscal deficit with a terminal year (FY26) target of 4 percent of the GDP," the Finance Commission's report said.

For FY22, the Centre will now spend Rs 34.83 lakh crore. The total capital expenditure for FY22 has been budgeted at Rs 5.54 lakh crore. On top of that, the Centre will provide an additional Rs 2 lakh crore to states and bodies for their capex needs. For FY21, the Centre had budgeted its own capital expenditure at Rs 4.13 lakh crore, which was later increased by Rs 38,000 crore.

For FY22, the Centre is targeting net tax revenue of Rs 15.45 lakh crore. This compares to FY21 revised estimate of Rs 13.4 lakh crore, a slippage of Rs 2.9 lakh crore from the current year's budgeted targets.

As a result of the expanded budget, the Centre will borrow Rs 12 lakh crore gross in FY22, and the borrowing will be about Rs 10 lakh crore. For the current year, the Centre will borrow Rs 80,000 crore more from the already revised borrowing of Rs 12 lakh crore.
Arup Roychoudhury

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