HomeEconomy NewsFY21 fiscal deficit seen around 7% of GDP

FY21 fiscal deficit seen around 7% of GDP

The sources are expecting 'at least' a 2 percent decline in revenue receipts this fiscal.

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By Sapna Das  October 22, 2020, 8:59:43 AM IST (Updated)

FY21 fiscal deficit seen around 7% of GDP
The government expects the fiscal deficit to be close to 7 percent of GDP or thereabouts in the current financial year. The general deficit is unlikely to be lower than 11 percent, with the state government borrowings estimated at 4 percent levels, sources told CNBC-TV18.


The COVID-19 related revenue stress is likely to be substantive, with the sources expecting at least a 2 percent decline in revenue receipts this fiscal. This revenue stress could upset the central government's deficit projection, although so far the centre has kept the Rs 12 lakh crore borrowings unchanged.

According to the sources, no suggestions have been made to the government on what can be the possible ideal level to peg the fiscal deficit in a COVID year.

“There are extreme positions being taken, with one school of thought advocating pump-priming the economy, and the other school cautioning government that big fiscal expenditures may not help boost demand in the current year. However, there is also a middle school of thought which is espousing us to spend but then with caveats attached like the inflationary impact, impact on government debt, the need for a return path to fiscal rectitude, possible rating action and so on," they said.

The sources also indicate structural changes or a fundamental review of the Fiscal Responsibility and Budget Management (FRBM) law may not be required at the moment. The timelines to meet the rolling targets under the FRBM law will be moved forward in the budget, they said.

The government could take a call on possibly incorporating a longer timeline to return to the 3 percent fiscal deficit target. Instead of a 3-year timeframe, the government could look at a 5-year fiscal framework for achieving this. However, the sources added that at the moment nothing has been deliberated on the issue and this may happen closer to the budget.

On September 30, Economic Affairs Secretary Tarun Bajaj had said, “The FRBM already has provisions to do these deviations in circumstances. We have to lay down a statement in the parliament which we will do and that is how we are actually borrowing more than what we had planned in the budget estimate and what the target that’s mentioned in the FRBM Act."
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