India’s fiscal deficit may exceed 7% in current fiscal, say sources

‘Government finances in poor condition because of a shortfall in tax receipts’

India’s fiscal deficit for the year ending in March is likely to exceed 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 had in February projected a deficit of 3.5% for the current year. It estimated government borrowing of ₹7.8 trillion, later revised to ₹12 trillion, to provide relief to millions of people and businesses hurt by the pandemic.

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

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

A Finance Ministry spokesman declined to comment. The government has yet to release any revised fiscal deficit estimates.

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

India on Thursday estimated GDP will contract by 7.7% in the full fiscal year.

Another senior government source said finances were in poor condition because of the shortfall in tax receipts, but the government has little room to cut spending as revival of the growth remains top priority.

“We could see the worst-ever fiscal deficit numbers in the current financial year,” said another government source, adding the fiscal deficit could touch 8% of GDP.

The final deficit estimates will be announced by Finance Minister Nirmala Sitharaman on Feb. 1, when she presents the annual budget.

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