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  3. Govt confident of lowering fiscal deficit to 4.5% of GDP by FY26: Somanathan

Govt confident of lowering fiscal deficit to 4.5% of GDP by FY26: Somanathan

08 Feb 2021 Evaluate

Expenditure Secretary T V Somanathan has said that the government is confident of lowering the fiscal deficit to 4.5 percent of GDP by 2025-26 fiscal, considering a nominal GDP growth of 10 percent every year.

India has exceeded its fiscal deficit target of 3.5 percent in the current fiscal by a wide margin due to higher spending to stimulate the economy amid the pandemic. As per the revised estimate, the fiscal deficit -- the excess of government expenditure over its revenues -- has been pegged at 9.5 percent of the gross domestic product (GDP) in the current fiscal ending March 31. For the next 2021-22 fiscal, the deficit has been pegged at 6.8 percent of GDP, which will be further lowered to 4.5 percent by the fiscal ending March 31, 2026.

Expenditure Secretary further said ‘the fiscal deficit target has been set keeping in mind the estimate of a 5-6 percent real GDP growth over next four years, while nominal GDP will be at least 44 percent higher than what it is today. Let us assume (real GDP) growth to be 5-6 per cent, and inflation at 4-5 per cent, we will get to 10 percent (nominal growth). Most likely we will get to 11 percent (nominal growth). So 44 percent growth in GDP denominator is almost certain. So on that GDP our deficit will be 4.5 percent. I think we are quite confident we will reach it.’

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