India's fiscal deficit in fiscal 2020-21 is likely to shoot up to 6.2 per cent of the gross domestic product (GDP) from the government estimate of 3.5 per cent as a result of the COVID-19 economic stimulus package, Fitch Solutions recently said. The Fitch Group-owned company had earlier estimated the figure to be 3.8 per cent of GDP for this fiscal.
With businesses disrupted due to the lockdown and its ripple effects, revenue will come under ‘heavy pressure’ and may force the Indian government to look towards additional borrowing or a higher central bank dividend to fund its expenditure, it said.India's fiscal deficit in fiscal 2020-21 is likely to shoot up to 6.2 per cent of the gross domestic product (GDP) from the government estimate of 3.5 per cent as a result of the COVID-19 economic stimulus package, Fitch Solutions recently said. The Fitch Group-owned company had earlier estimated the figure to be 3.8 per cent of GDP for this fiscal.#
Underpinning the revised forecast are weaker revenue collection as a result of a sharp coronavirus-driven downturn in economic activity and higher expenditures aimed at softening the pandemic’s economic shock, according to a news agency report.
Stating that weak economic activity will likely see revenue collection contract in 2020-21, Fitch Solutions said receipts may contract by 1 per cent from a growth of 11.8 per cent previously.
"We have revised our FY2020/21 real GDP growth forecast to 4.6 per cent, from 5.4 per cent previously, to reflect our view for growth to weaken further from our estimate of 4.9 per cent in FY2019/20 due to both economic disruptions due to domestic movement restrictions and weak global demand," it was quoted as saying.
The mass migration of urban migrant workers raises a significant risk of a larger COVID-19 outbreak across the country, it said, adding the rural areas reportedly have fewer coronavirus cases versus the cities as of March end and the perceived safety of the rural areas has given another reason for the migrant workers to return home.
The company sees virus-led economic disruptions extending for several quarters, which will weigh heavily on personal and corporate income tax collections for the year.
At the same time, expenditures are expected to surge as the government responds to the crisis both on an economic and social front over 2020-21.
The company forecasts that expenditures will rise by 22.2 per cent despite lower revenue collection, and added that the government will have no choice but to increase its spending, over and above what it has planned for in 2020-21 Union Budget and the ₹1.7 trillion fiscal stimulus package it released on March 26.
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