Ind-Ra expects fiscal deficit to touch 7.6 per cent in FY21

India Ratings and Research (Ind-Ra) in its latest report stated that the government's fiscal deficit is estimated to touch 7.6 per cent in FY21, more than double the Budget Estimate (BE), as the nation spends extra to lessen the impact of the COVID-19 pandemic while facing a shortfall in incomes.

Ind-Ra said that at the consolidated level, the fiscal deficit of the Centre and states will collectively come to 12.1 per cent, with states contributing 4.5 per cent.

It also said that the government has already announced a stimulus package, damaging the fiscal math by 1.1 per cent and there is a demand coming for a second package. As per the report, economic activities have slowed down as a result of the long lockdown caused by the COVID-19 pandemic. It added that India's gross domestic product (GDP) will shrink by 5.3 per cent, while states like Assam, Goa, Gujarat, and Sikkim are expected to witness a double-digit contraction.

With the growth and revenue going down, Ind-Ra is of the view that the obvious impact will be on the fiscal deficit, which is considered as an important macroeconomic health indicator.

In addition to this, the agency also said that the growth slowdown will have a significant impact on the asset quality of the financial sector as both banks and non-banks would require more capital to continue lending. It further said that the reverse migration out of cities and industrial towns to their hometowns will delay the manufacturing sector's recovery and may also translate the same into elevated wages