20th January 2022

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India’s Fiscal deficit

Led by a sharp drop in tax revenue, India’s Fiscal deficit increased sharply to 4.6% of GDP in 2019-2020, from a last time revised target of 3.8%. The Fiscal deficit as a percentage of GDP exceeded 4.5% was in 2012-13, when it was recorded at 4.8%.

Data released by the Comptroller General, the chief accounting officer of the Indian government, showed on Friday that India’s Fiscal deficit was Rs 9.36 lakh crore in 2019-20 against the revised estimate of Rs 7, 67 lakh crore.

This was mainly due to tax revenues below almost Rs 1.5 lakh crore from the revised tax estimates. Tax revenue was Rs 13.55 lakh crore in 2019-20 against revised estimates of more than Rs 15 lakh crore.

On Friday, separate data released by the Central Bureau of Statistics showed that India’s nominal GDP grew only 7.2% to Rs 203 lakh crore. Together, these two factors increased the budget deficit as a percentage of GDP.

During her budget presentation on February 1, Finance Minister Nirmala Sitharaman invoked a safeguard clause in the Fiscal Responsibility and Budget Management Act for 2019-20 and 2020-21. This allowed the government to deviate from the budget deficit targets for these two years by 0.5 percentage points, to 3.8% and 3.5%, respectively.

The deficit, which signifies the gap between public revenue and expenditure, is higher than the revised estimate of 3.8% for the 2019-2020 fiscal year, which translated into 4.59% of GDP, while the revenue deficit which signifies the deficit between current income and current expenses was at 3.27% against 2.4 per cent in the revised estimates. The revenue receipts during the year worked out to be only 90 per cent of the revised estimate.

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