India’s fiscal deficit for the year ending March 31 is 4.4% of the country’s GDP, a Bloomberg report said. This breaks the government's own target of 3.8%, which it set in February, as announced by Finance Minister Nirmala Sitharaman. This too was revised from an earlier target of 3.3%. According to Bloomberg, this is due to reduced tax collections because of the economic slowdown.
In 2003, the UPA government passed the Fiscal Responsibility and Budget Management Act which set a limit of deficits. Under this fiscal deficit was to be 3% of the GDP and revenue deficit was to be eliminated, among other things. While these targets have been suspended by former Finance Minister Arun Jaitley, the FRBM Act has been ignored.
However, while the government may need to suspend the law, they can amend the Act as the only thing required is to bring it through a Money Bill, which only requires a majority in the Lok Sabha to clear. In the past, the FRBM Act was temporarily suspended in 2009 due to the international financial crisis.
The report states that the higher deficit is due to a shortfall of Rs 1.7 trillion.
India is expected to miss its direct tax collections for 2019-20 as well. The government collected over Rs 7.52 lakh crore as direct taxes till January 31 of the fiscal, the government said in the Rajya Sabha. According to the Revised Estimate (RE), target for collection of direct taxes was at Rs 11.70 lakh crore.
For FY21, Motilal Oswal Institutional Equities has said in its ecoscope report that the government is unlikely to stick to the targeted levels of borrowings in the current fiscal as additional expenditure and funding needs of stimulus measures would push for higher government debt in the second quarter period.
"...the government plans to stick to its budgeted target of gross market borrowings for FY21 (BE). This is very difficult to comprehend because of three reasons: tight fiscal position of the central government, additional burden of Rs 1.7 lakh crore welfare package and severely impacted government receipts (especially indirect taxes) due to loss of economic activity at least till mid-April," the brokerage said.
The government has budgeted to borrow Rs 4.88 lakh crore in first half of FY 21. This is 63% of annual borrowings budgeted for the current fiscal, similar to the ratio last year. The borrowing calendar of the government also suggests that, as of now, it plans to stick to its budgeted target.
However, resources to finance additional expenditure on account of measures to contain the adverse impact of COVID-19 pandemic would constrain the government to increase its borrowing later.
"If this is the case, we expect the government to revise its borrowing calendar towards second quarter of FY21 or go for some other means of financing the additional gap," Motilal Oswal report said.
With IANS inputs