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India’s fiscal deficit likely to be more than double to 7.9% in FY21: SBI research report

15 May 2020 Evaluate

SBI’s research report Ecowrap has stated that with the government's cumulative package of Rs 20 lakh crore, which is nearly 10 percent of GDP, India’s fiscal deficit is likely to be more than double to 7.9 percent in the current financial year (FY21). It had earlier estimated the fiscal deficit to be 3.5 percent of GDP this fiscal. 

The report said ‘after taking into account cash outflow of these measures as well as the previous and the recent excise duty hike and DA freeze (amounting to around 0.8 percent of GDP), we now revise our baseline fiscal deficit (excluding extra budgetary resources (EBR)) to 7.9 percent of the revised GDP in FY21 from 3.5 percent earlier, owing to lower revenues and higher expenditure against the backdrop of COVID-19 pandemic. It added that baseline fiscal deficit based on Central Statistics Office’s (CSO) earlier estimates of GDP is around 7.1 percent of GDP.

It further said ‘we estimate a 4.5 percent direct impact on fiscal deficit purely because of revenue shortfall / automatic fiscal stabilizer and a 0.9 percent indirect effect because of GDP change.’ It said the government Rs 20 lakh crore package includes Rs 1.7 lakh crore of fiscal stimulus announced in the first phase, Rs 5.6 lakh crore stimulus provided through various monetary policy measures and Rs 5.94 lakh crore through the second phase, implying Rs 6.70 lakh crore package is still to be announced.

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