The Indian government's ₹20-trillion stimulus package is likely to more than double the country's fiscal deficit and take that to 7.9 per cent in this fiscal, according to Ecowrap, a research report by the State Bank of India (SBI), which had earlier estimated the fiscal deficit to be 3.5 per cent of the gross domestic product (GDP) this fiscal.
"After taking into account cash outflow of these measures as well as the previous and the recent excise duty hike and DA [dearness allowance] freeze (amounting to around 0.8 per cent of GDP), we now revise our baseline fiscal deficit (excluding extra-budgetary resources (EBR)) to 7.9 per cent of the revised GDP in FY21 from 3.5 per cent earlier, owing to lower revenues and higher expenditure against the backdrop of COVID-19 pandemic," the report said.The Indian government's ₹20-trillion stimulus package is likely to more than double the country's fiscal deficit and take that to 7.9 per cent in this fiscal, according to Ecowrap, a research report by the State Bank of India (SBI), which had earlier estimated the fiscal deficit to be 3.5 per cent of the gross domestic product (GDP) this fiscal.#
Baseline fiscal deficit based on the Central Statistical Office’s earlier estimates of GDP is around 7.1 per cent of GDP, it added.
"We estimate a 4.5 per cent direct impact on fiscal deficit purely because of revenue shortfall / automatic fiscal stabilizer and a 0.9 per cent indirect effect because of GDP change," Indian media reported citing Ecowrap.
"The cumulative actual fiscal impact is only around Rs 1.14 trillion or 0.6 per cent of GDP," the SBI document said.
It said there have been studies which show that if the difference between the interest rate and nominal growth rate is negative then there is no level of debt which is unsustainable, that is the government can borrow easily. Only if the differential becomes positive then the question about maximum sustainable debt exists.
"Thus, in India, as we expect the ratio to become positive by end-FY21, we would have to look into the upper limit of debt which is sustainable. Against this background, it is imperative that we give growth a definite push," the report added.
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