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Fiscal deficit may rise over 8% of GDP

Fiscal deficit may rise over 8% of GDP
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Fiscal deficit may rise over 8% of GDP

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Low economic activity, lower tax collections will widen deficit: Report

New Delhi: With economic disruptions set for a long haul due to Covid-19 pandemic, India could see its fiscal deficit this year to balloon to over 8 per cent of GDP, brokerages analysing the deficit numbers post release of August GST collection data have said.

The Controller General of Accounts on Monday said that country's fiscal deficit has expanded to 103.1 per cent of Budget Estimate in the April-July period primarily due to lower tax collection and higher expenditure for Covid-19 relief. According to a report on Indian economy by Kotak Institutional Equities, low economic activity and lower tax collections coupled with expanded Covid-19 related expenditure have created a scenario where the deficit would widen.

It could go up over the estimated levels of 8 per cent to 9 per cent or more if the Centre did not cut its expenditure by Rs 1.7 lakh crore while increasing spent on infrastructure sectors, the brokerage report said. But the concern is on revenue collections, with GST collections being at just around Rs 3.1 lakh crore in the five month period (April-August) against the budget estimate of Rs 13.4 lakh crore for FY21. This means that in the rest of the year collections should go up to Rs 1.5 lakh each month. This looks impossible in the current situation.

"Even though there will be some improvement in collections over the next few months, we could still witness a CGST shortfall of Rs 1.5-2 lakh crore against FY2021BE," the Kotak report said.

"With gradual reopening of the economy, tax collections will improve over the next few months. We have already seen some improvement in the activity levels. However, we have factored in our revised GDP growth of (-)11.5 per cent (nominal at (-)10 per cent) in our fiscal estimates and revise our GFD/GDP forecast to 8 per cent," the brokerage said.

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