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Centre’s fiscal deficit to increase to 7.6% & India’s GDP to contract by 5.3% in FY21: India Ratings and Research’s Report

Fiscal deficit to shoot up to 7-6% in FY21As per the research report of India Ratings and Research(Ind-Ra), Centre’s fiscal deficit is estimated to increase to 7.6% in FY21, which is twice the budget estimate as the  country spends more to mitigate the impact of COVID-19 pandemic, facing a shortfall in revenues. The report projects India’s Gross Domestic Product(GDP) to contract by 5.3% in FY21.

Key Info

  • The aggregate of the central and state fiscal deficit in FY21 is 12.1%, with the states contributing 4.5%.
  • States like Assam, Goa, Gujarat and Sikkim are likely to experience double digit contraction in GDP.

Note:

i.The decrease in the growth and revenue will impact  the fiscal deficit, which is considered an important macroeconomic health indicator.

ii.The  government has already announced a stimulus package that damaged the fiscal by 1.1%. 

Highlights

Financial Sector-There will be a significant impact on the asset quality of the financial sector due to growth slowdown. The Banks and Non-banks will require more capital to continue lending.

Supply Side– The supply side has been severely disrupted by the pandemic, as production and sale were allowed only in the areas classified as ‘essential’ during the lockdown.

Manufacturing Sector-The reverse migration from cities and industrial cities to their hometowns will delay the recovery of the manufacturing sector and may also translate into higher wages.

Significant remittance-The states who receive significant remittances( India, the largest recipient of such transfers from any country’s diaspora) will be impacted as return and/or repatriation of expatriates to India has its own consequences for the Indian economy.

About Ind-Ra:
Ind-Ra is a 100% owned subsidiary of the Fitch Group.
Headquarters– Mumbai, Maharashtra
Managing Director & CEO– Rohit karan Sawhney

Recent Related news

i.India’s economy is predicted to -7.3% for FY 21 due to the 2nd wave of COVID-19: Organisation for Economic Co-operation and Development (OECD)’s June 2020 Economic Outlook (EO).

ii.India’s GDP to Fall 3.1% in 2020; Geo-Political Tensions Will Increase Risk: Moody’s Global Macro Outlook report.