Fiscal deficit pegs at 6.8 per cent for FY22

Looking at the current equity market, one cannot imagine the extent to which COVID-19 has inflicted pain to the Indian economy. They are trading close to a lifetime high. Nevertheless, if you look at the fiscal deficit number, it shows the wound to the economy. The target of fiscal deficit is revised to 9.5 per cent of GDP in RE 2020-21 compared to the budgeted level of 3.5 per cent of GDP. This increase is attributed to the increased expenditure on account of various schemes announced by the Government in the light of the COVID-19 pandemic, and a sharp shortfall in revenue receipts (both tax and nontax), along with a significant drop in disinvestment receipts. It is estimated that in the revised estimate (RE) 2020-21, the gross tax revenue to GDP ratio and the total expenditure to GDP ratio will be 9.8 per cent and 17.7 per cent, respectively compared to the BE 2020-21 of 10.8 per cent and 13.5 per cent, respectively. Gross tax revenue (GTR) estimates for FY 2020-21 have reduced by Rs 5,22,740 crore, mainly on account of a less-than-anticipated collection of corporation tax & customs duty.  

The biggest shortfall was witnessed in non-debt capital receipts. The revised estimate for non-debt capital receipt is Rs 46,497 crore against budgeted Rs 2,24,967 crore in BE 2020-21. The absolute value of fiscal deficit has been revised to Rs 18,48,655 crore in RE 2020-21 with an increase of Rs 10,52,318 crore over fiscal deficit projections of BE 2020-21.  

The fiscal deficit in the budget estimate (BE) 2021-2022 is estimated to be 6.8 per cent of GDP. The gross borrowing from the market would be around Rs 12 lakh crore for FY22. The main reduction in the deficit is anticipated to be carried out by a reduction in expenditure from 17.7 per cent of GDP in RE 2020-21 to 15.6 per cent in BE 2021-22 and a marginal increase in gross tax revenues to the tune of 0.1 per cent of GDP. The government intends to reach a fiscal deficit level below 4.5 per cent of GDP by 2025-2026.