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CARE Lowered Centre’s Fiscal Deficit Projection to 7.8% of GDP from 9-9.5% for FY21

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CARE lowers Centre’s fiscal deficit projectionOn January 13, 2021, CARE Ratings downgraded its projection of the Centre’s fiscal deficit to 7.8% of GDP (Gross Domestic Product) during FY21 against its earlier estimate of 9-9.5%. As per this the Fiscal deficit is likely to be around Rs 15.3 lakh crores.

  • This revision followed the release of the first advance estimate of GDP for FY21 by the Ministry of Statistics and Programme Implementation (MOSPI).
  • It should be noted that, if borrowings of Rs 1.1 lakh crs for GST shortfall is added separately, the fiscal deficit could widen to 8.4% of GDP.

Prime Variables of Deficit Funding:

The funding of the deficit is primarily going to be via market borrowing, National Small Savings Funds (NSSF), short term borrowings, drawdown of cash balances.

Assumptions taken while computing the Gross Fiscal Deficit

–Nominal GDP is assumed to be around Rs 195 lakh crs as per the 1st advance estimates of the Government.

–In case of tax revenues, the tax to GDP ratio is assumed at 10.8%.

–A shortfall of around Rs 2.2 lakh crs in FY21 in tax revenues.

–A shortfall of Rs 50,000 crs in Non-tax revenues.

–Increase in total expenditure by around Rs 3.6 lakh crs during FY21.

Additional Info:

Before the outbreak of the Covid-19 pandemic, the Government had budgeted a fiscal deficit of 3.5% GDP for FY21.

Recent Related News:

  • S&P Global Ratings (previously Standard & Poor’s), in its report on Asia Pacific stated that. it has retained its forecast of 9% contraction(-9%) in the Indian economy for FY21 and projected that it will grow at 10% in FY22.
  • In accordance with the official data released by Controller General of Accounts (CGA), the Central Government’s fiscal deficit increased to Rs 9.53 lakh crore (9,53,154 crore), or 119.7% of the annual budget estimate of FY21, at the end of October 2020. It was 114.8% of the annual budget estimate at the end of September 2020. Also, in the first 7 months of the FY20, the deficit was at 102.4% of the annual target.

About CARE Ratings:
Managing Director & Chief Executive Officer (CEO)– Ajay Mahajan
Headquarter– Mumbai, Maharashtra