India’s Fiscal Deficit Could Be 7.6% of GDP In FY 2021

In its EcoScope report - 3QCY20: India's Quarterly Economic Outlook, Motilal Oswal Financial Services Ltd. (MOFSL) cited that central government's fiscal deficit could be at Rs 14.6t (or 7.6% of GDP) in FY21 on account of an 18% YoY contraction in total receipts and 8% growth in total spending.

"Notwithstanding the massive contraction in economic activity, the revised headline/core inflation projections from MOFSL have moved now to higher levels of 5.9%/5.4% from 5%/2.3% earlier. In the past quarter, the INR has moved broadly as expected. Thus, MOFSL revised it marginally to 74.5/USD for FY21 from an average of 74.8/USD earlier," Motilal Oswal Financial Services said in a report.

According to the brokerage firm, Government spending is expected to be highly skewed toward revenue (or current) spending this year.

"As a result, it appears that while revenue spending could grow at 10% in FY21, capital spending could decline by 2-3%. If so, this implies capital spending would decline 5% YoY in the remaining eight months of FY21 (v/s 3.9% growth over Apr-Jul'20). On the other hand, revenue spending would grow 8% over the Aug'20-Mar'21 period (v/s 12.2% growth over Apr-Jul'20). Furthermore, MOFSL calculations suggest the central government's fiscal deficit could be INR14.6t (or 7.6% of GDP) in FY21 on account of an 18% YoY contraction in total receipts and 8% growth in total spending," the broking firm has said.

The fiscal deficit numbers is a closely watched number by the global rating agencies for a ratings downgrade. A ballooning fiscal deficit number would not augur well for India.