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Covid-19 impact: Centre's FY21 fiscal deficit seen at 5% or higher

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CIO Insider Team

To maintain the budgetary expenditure for financial year 2021, the Centre will mark a fiscal deficit of 5 percent of more with a huge fiscal slippage from the budgeted 3.5 percent of the GDP. The fallout of Covid-19 slowed the economic growth and consequent lethargy in tax receipts.

Experts commented that the tax buoyancy will fall further, resulting in a deficit level of 5.2 percent of the budget and 6.6 percent, which includes off-budget spending. As per the Ecowrap report that

came out few days back, the pandemic will have an impact on GDP through trade, hotels, transport, communications and services. On Friday, the finance ministry has asked public sector banks to ensure the implementation of the rate cut announced for the funds to flow to industries in Micro, Small and Medium Enterprises.

Nomura, a finance services company, has estimated the GDP growth of India in the range of (-) 0.5 percent to 0.5 percent, which falls parallel to the nominal GDP growth rate of 4 percent. States are likely to exhibit a slippage in the current financial year and the Covid-19 could further worsen the condition in the FY21.

As experts in the field point out, if the Centre chooses to hike fuel duties threefold over the current hike, it could net some Rs 1.5 lakh crore over the budgeted net tax receipts. Businesses and industries have come to a standstill ever since the Centre announced a 21 days lockdown countrywide to contain the spread of the virus. With zero footfalls recording in the market, demand has come down in both domestic and international markets, halting the movement of goods. The small and medium enterprises in India were already witnessing a huge loss in their business due to the longer-than-expected slowdown in India.

Recently, Moody’s and State Bank of India have recorded a steep cut in the estimates of India’s real GDP growth for the upcoming financial year to 2.5 percent and 2.6 percent respectively.

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