The early estimates for the fiscal deficit were in the range of 7-8 per cent. But according to Care Ratings, this is set to double. This rise in fiscal deficit is based on the assumption that there will be no new fiscal stimulus this year that will increase government’s expenditure.
“Based on various scenarios. we believe the combined fiscal deficit could be in the region of 13-13.4 per cent for the year. This is more than double of what was projected before COVID-19 struck India,” stated Care Ratings.
The rating agency states that due to the COVID-19-induced lockdown all the economic projections have gone awry. “More so, the fiscal balances which have been affected by multiple factors: fall in revenue, change in expenditure priorities, the lower base of GDP etc. All this has meant that the centre and states will have a challenge in managing their fiscal targets.” For the first three months of fiscal 2020-21, the Centre’s fiscal deficit was Rs 6.62 lakh crore, which is 83 per cent of the budgeted target for the year.
The rating agency pointed out the centre has already announced a higher borrowing programme while states have been allowed to increase their deficits by 0.5 per cent of GSDP without any conditions. “Some have gotten permission to increase their deficit based on reform conditions being met.”
As per the Budget which was presented by Finance Minister Nirmala Sitharaman in February, the government had estimated the fiscal deficit for 2020-21 at Rs 7.96 lakh crore or 3.5 per cent of the GDP.