The Finance Minister has pegged the fiscal deficit for FY21 at ₹18.48 lakh crore amounting to 9.5 per cent of GDP. This is in line with expectations because the fiscal impact of the three tranches of stimulus announced by the Centre totally amounts to around ₹3.5 to 4 lakh crore. Total revenue receipts in the period between April and December 2020 is 5 per cent lower than the corresponding period in 2019, at ₹10.88 lakh crore. The FM has managed to pencil in capital expenditure of ₹4.39 lakh crore for FY21 against ₹4.12 lakh crore in the Budget Estimate. This coupled with the lower disinvestment receipt, at just ₹32,000 crore would have jacked the fiscal deficit for FY21.


Fiscal deficit

The fiscal deficit for FY22 at ₹15.06 lakh crore, at 6.8 per cent of GDP, is currently of greater interest. These numbers have been arrived at by assuming 15 per cent increase in tax revenue for FY22 over the revised estimate for FY21 and 15 per cent increase in non-tax revenue. Given the projection in the Economic Survey of the estimated real GDP growth for FY 2021-22 at 11 per cent and the nominal GDP of 15.4 per cent, the growth in tax revenue is not too out of line. But since the growth comes on a lower base, the absolute revenue under many heads could be lower than pre-covid levels in many taxes in FY22.

Going by the trends in collections, corporation tax receipts for FY22 could struggle to grow given the slower demand conditions. Income tax and GST collections are expected to grow at a sedate pace. Disinvestment proceeds will hinge to a large extent on the stock market staying buoyant. Additional revenue from the agri infra cess could save the day, to some extent. The Centre is also trying to raise money through asset monetisation and aggressive disinvestment.


While the outlook on revenue is not too robust, the Centre is being aggressive in pushing growth through capital expenditure, pencilling in an increase of 26 per cent in FY22 over RE FY21. This increase is, however, being offset by decrease of 2.7 per cent in revenue expenditure, which has resulted in keeping the overall growth in expenditure flat for FY22.

The government has therefore bitten the bullet in going for higher borrowing to push growth. The benefits to be accrued by this is expected to offset any short-term inflationary pressure.