India Ratings pegs Centre's fiscal deficit at 3.6% of GDP ahead of Budget

Ten days ahead of the Budget, India Ratings (Ind-Ra) pegged the Centre’s fiscal deficit at 3.6 per cent of gross domestic product (GDP) against the Budgeted Estimate of 3.3 per cent.


In its outlook for FY21, it projected the deficit to be 3.4 per cent in the next year against 3 per cent given in the papers presented under the Fiscal Responsibility and Budget Management (FRBM) Act.


It said the government should widen the fiscal deficit within a range recommended by the FRBM panel, headed by former bureaucrat N K Singh, if it is required to push up economic growth. The panel recommended that the government may widen or contract the deficit by up to 0.5 percentage points to go for counter-cyclical measures in the event of slow down or heating up of the economy. It projected the GDP at current prices to grow by 9.3 per cent in 2020-21 against 7.5 per cent for FY'20 pegged by advance estimates. The Budget for FY'20 had pegged the nominal GDP to grow by 12 per cent. As such, the sub-ten per cent growth in GDP would have repercussions for revenue projections as well.  “A continuance of low GDP growth even in FY21 means subdued tax revenue and limited room for stepping-up expenditure," said Sunil Kumar Sinha, principal economist at India Ratings.

Ind-RA said the slowdown is a combination of several factors including an abrupt and significant fall in lending by non-banking financial companies close on the heels of a slowdown in bank lending and reduced income growth of households coupled with a fall in savings and higher leverage.


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