India’s fiscal deficit likely to be over 7 percent in 2020-21: Sources

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India’s fiscal deficit for year ending in March is likely to be over 7% of gross domestic product.

India’s fiscal deficit for year ending in March is likely to be over 7% of gross domestic product, three sources told Reuters, as revenue collections suffered from a lockdown and restrictions to rein in the spread of COVID-19.

The government of India had projected a fiscal deficit of 3.5% of GDP for the current year last February. It estimated government borrowing of 7.8 trillion rupees, later revised to 12 trillion rupees, to provide relief to millions of people and businesses hurt by the pandemic.

India’s fiscal deficit of more than 7% would be higher than some private economists have projected. Many of them forecast an uptick in tax collections in the second half of the fiscal year. But government sources say the uptick won’t be enough to compensate for earlier losses.

“The fiscal deficit will be bigger than what some estimated. Our revenue collections suffered due to the complete lockdown in the first three months and that are hard to recover,” said a source with direct knowledge of budget discussions. “What we’re looking at is a 7% plus.”

Pandemic hits India hard

Two of the sources said the revenue shortfall from tax and divestment of state-run companies could be as much as 7 trillion rupees.

A finance ministry spokesman declined to comment on the matter. The government has yet to release any revised fiscal deficit estimates.

The pandemic and stringent lockdown measures imposed by India in the early stages hit India hard. Asia’s third largest economy recorded it’s first-ever recession with a contraction of 23.9% in the April-June quarter. And it posted a 7.5% fall in the September quarter.

India is set to release its first advance estimates of GDP for the 2020/21 fiscal year, later on Thursday.

Another senior government source said government finances were in poor condition because of the shortfall in tax receipts. But the government has limited room to cut spending as revival of the growth remained top priority.

“We could see the worst-ever fiscal deficit numbers in the current financial year,” said another government source. And the source with direct knowledge of budget matters added that the fiscal deficit could touch 8% of GDP.

Finance Minister Nirmala Sitharaman will announce the final fiscal deficit estimates on February 1, when she presents her annual budget for the next financial year.

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