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Fiscal deficit may rise to Rs 14.6L cr in FY21
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SME Times News Bureau | 18 Sep, 2020
The gap between government's total income and expenditure is expected to
balloon to Rs 14.6 lakh crore or 7.6 per cent of GDP in FY21 as
economic disruptions are set for a long haul due to Covid-19 pandemic,
brokerages analysing the deficit numbers said.
The Controller
General of Accounts early this month said that the country's fiscal
deficit has expanded to 103.1 per cent of Budget Estimate in the
April-July period primarily due to lower tax collection and higher
expenditure for Covid-19 relief. The signals are clear indicators that
the fiscal deficit would break all previous records to jump to over
double the budget targets in FY21.
According to an EcoScope
report by Motilal Oswal Financial Services, the higher 7.6 per cent
fiscal deficit this year would be on account of an 18 per cent YoY
contraction in total receipts and eight per cent growth in total
spending.
During an emergency economic situation, it is always
the increased government spending that helps to prop up the investment
climate and boost demand in the economy. But worrisome aspect this year
during the pandemic is that the government spending is expected to be
highly skewed towards revenue (or current) spending this year with
economic boosters capital expenditure on a decline.
The brokerage
report showed that while revenue spending (largely to pay salary and
pension bills) of the government could grow at 10 per cent in FY21,
capital spending could decline by 2-3 per cent. If this trend continues,
capital spending could suffer further and decline five per cent YoY in
the remaining eight months of FY21 (v/s 3.9 per cent growth over
April-July'20). On the other hand, revenue spending would grow eight per
cent over the August'20-March'21 period (v/s 12.2 per cent growth over
April-July'20).
The brokerage expects real GDP to contract seven
per cent YoY in 2QFY21, worse than the earlier forecast of (-) 4.7 per
cent, but certainly better than the growing consensus of another
double-digit decline in real GDP. Consequently, the real GDP could
decline to (-) 6.5 per cent YoY for the full-year FY21, marking the
worst fall in the past seven decades. Also, India's nominal GDP is
likely to contract to (-) 5.3 per cent this year, marking its first
contraction in 65 years, following the slowest growth seen in 48 years
(7.2 per cent in FY20).
Motilal Oswal had projected that India's
headline inflation would remain at six per cent up to July'20, before
easing to four per cent by December'20. Due to Covid-19, the expectation
was that that headline inflation would ease to three per cent by
December'20. However, with headline inflation at 6.7 per cent YoY each
in July'20 and August'20, the brokerage has revised its forecasts
upward. Consequently, fresh calculations suggest headline inflation is
unlikely to fall below 4.5 per cent in FY21.
With the massive
slowdown in the global and domestic economic environments, it is broadly
expected that inflationary pressures would also subside substantially.
While headline inflation has actually subsided in most nations, it has
risen in Russia and Mexico and remained elevated in India and Turkey.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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