Due to COVID stress Govt expects fiscal deficit around 7 percent of GDP in FY21

Due to COVID  stress Govt expects  fiscal deficit around 7 percent of GDP in FY21

According to the sources, The government expects the fiscal deficit to be close to 7 percent of gross domestic product (GDP) or thereabouts in the current financial year (FY21). The general deficit is unlikely to be lower than 11 percent, with the state government borrowings estimated at 4 percent levels.

Sources expecting at least a 2 percent decline in revenue receipts this fiscal. This revenue stress could upset the Centre's deficit projection, although so far the center has kept the Rs 12 lakh crore borrowings unchanged.

According to the sources, no suggestions have been made to the government on what can be the possible ideal level to peg the fiscal deficit in a COVID year.

Sources also added that There are extreme positions being taken, with one school of thought advocating pump-priming the economy, and the other school cautioning government that big fiscal expenditures may not help boost demand in the current year. However, there is also a middle school of thought which is espousing us to spend but then with caveats attached like the inflationary impact, impact on government debt, the need for a return path to fiscal rectitude, possible rating action, and so on.

The sources also indicate structural changes or a fundamental review of the Fiscal Responsibility and Budget Management (FRBM) law may not be required at the moment. The timelines to meet the rolling targets under the FRBM law will be moved forward in the budget.