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Union Budget 2021: Govt estimates FY21 fiscal deficit at 9.5%, targets at 6.8% for FY22

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A fiscal deficit is a shortfall in a government's income compared with its expenditure.

Union Budget 2021: Govt estimates FY21 fiscal deficit at 9.5%, targets at 6.8% for FY22
The government has estimated India’s fiscal deficit for the current financial year at 9.5 percent and has set a target at 6.8 percent for the financial year 2022, said Finance Minister Nirmala Sitharaman while announcing what is dubbed as India’s most crucial Union Budget in recent years.
A fiscal deficit is a shortfall in a government's income compared with its expenditure.
For FY21, the fiscal deficit was estimated at 3.5 percent by the government in the last Budget announced in February 2020.
The FM said that COVID-19 resulted in weak revenue inflow while the expenditure scaled higher to provide support to the lower-income groups and those affected during the pandemic. She added that the expenditure further increased once the health situation stabilised as the government spent to boost demand.
This was funded through government borrowings, multilateral borrowings, among others, she said, adding that the government needed another Rs 80,000 crore for which it would be approaching the market in the next two months.
The FM proposed a sharp rise in capital expenditure of the government to Rs 5.54 lakh crore, 34.5 percent higher than the budget estimate of 2020-21.
Along with the structural reform measures, in the Budget 2021-22, the government has focused on its mandate in the preamble to the FRBM Act, of improving fiscal transparency.
In RE 2020-21, the government has estimated to pre-pay around Rs 1.5 lakh crore of outstanding food subsidy related loans of the Food Corporation of India.
Total expenditure, which was estimated at Rs 30,42,230 crore in BE 2020-21, has been revised to Rs 34,50,305 crore (13.4 percent increase) in RE 2020-21.
The increase is mainly on account of increased allocations for food subsidy, health and rural development. In RE 2020-21, allocation of the Department of Food and Public Distribution is revised to Rs 4,38,649 crore from budgeted Rs 1,22,235 crore.
For Health and Family Welfare, Rs 78,866 crore has been allocated compared to budgeted Rs 65,012 crore. A significant upward revision is observed in allocation to Central Sector Schemes/Projects from Rs 8,31,825 crore to Rs 12,63,690 crore (52 percent increase).
It is estimated that total expenditure will increase by 1 percent in BE 2021-22 over RE 2020-21 to reach Rs 34,83,236 crore, which is 15.6 percent of GDP.
India’s fiscal deficit in the nine months to December was seen at 11.58 trillion rupees ($158.74 billion), 145.5 percent of the budgeted target, according to the government data released on Friday.
Theoretically, an increase in the fiscal deficit gets an economy out of a slowdown as spending rises, giving more money in the hands of people to buy and invest. However, long-term deficits can be harmful for a country’s growth and stability.
The fiscal deficit estimate of the current financial year is much higher, even though the larger expectation was that the number would overshoot the target set last year as the government would look to spend more to push economic recovery after massive damage by COVID-19.
With the fiscal deficit number at 9.5 percent for the current year, the target set to bring down the country’s fiscal deficit to 3 percent has been delayed yet again.
The Fiscal Responsibility and Budget Management Act, enacted in 2003, had set the target for India’s fiscal deficit at 3 percent of the gross domestic product (GDP) for March 2021, however, this goal has been deferred.
The govt now aims to reach below 4.5 percent by FY26 in a steady manner.
The FRBM Act allows the government an ‘escape clause’ of 0.5 percentage points which can be invoked during calamities and crises when the economy witnesses any structural changes or a slowdown. In last year’s Budget, the government had invoked this clause.
For the last 15 years, India has largely successfully kept the deficits below budgeted levels. In 2018-19, the government exceeded its budgeted target of fiscal deficit of 3.3 percent, with the actual deficit being 3.4 percent.
In 2019-20, the government had set a budget estimate of 3.3 percent for the fiscal deficit but exceeded the target in revised numbers.
 
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