Fitch Solutions revises India’s fiscal deficit forecast to 7.8 per cent from 8.2 per cent earlier for FY21

Fitch Solutions on Friday revised its forecast for central government’s fiscal deficit for the financial year (FY) 2020-21 to 7.8 per cent from its earlier projection of 8.2 per cent.

According to the report, this revised forecast was driven by a strong recovery in tax revenues during the second quarter of FY 2020-21.

According to Fitch Solutions, it “suggests a faster than previously anticipated path of recovery for fiscal receipts over the fiscal year.”

The company, however, said that it maintains that its views that the receipts in FY21 will be lower as compared to FY20. But, it has revised its outlook for central government expenditures to come in slightly below budget projections, as “revenue constraints will likely see some winding down of fiscal spending on a year-on-year basis over the second half of FY21.”

The fiscal revenue forecast in FY21 for the central government has been revised to 18.2 per cent decline, from the earlier forecast of 18.4 per cent, as per the report.

“Total receipts staged a strong quarter-on-quarter (QoQ) recovery in Q2FY21, coming in at Rs 4,118 bn, a 168 per cent jump from Q1 FY21, when India’s nationwide lockdown severely crippled economic activity and with it, fiscal receipts. That said, we highlight that total receipts in Q2FY21 was still down 25 per cent year on year (YoY) despite improving from -47 per cent yoy in Q1FY21,” it said.

The expenses of the Centre are also expected to rise by only 12.1 per cent in FY21, versus 12.7 per cent previously.

“Total expenditures fell by 18.7 per cent QoQ to Rs 6,634 billion in Q2 FY21, from Rs 8,159bn in the first quarter. We believe that high expenditures in the first quarter, which were up 13.1 per cent YoY, was the result of a frontloading of government spending to aid the economy through the lockdown period from end-March to June,” it stated.

It further added that with the lower receipts in the ongoing FY than FY 20, the government will likely “rein in spending in the second half of FY21.”

However, rural development and health care would be the key areas which would be given a priority by the government even during this phase, and further fiscal stimulus announcements could also be made as per the report.

Fitch Solutions has also maintained its forecast that the total public debt as a share of gross domestic product (GDP) to rise to 86.7 per cent, as compared to 72.2 per cent in FY 20.

“This is due to the latest increase in gross market borrowing target by Rs 1 trillion being central borrowing on behalf of the states, which on net does not change our total gross market borrowing assumptions. Most of the borrowing will continue to be domestic from the banking sector,” it said.



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