Ind-Ra pegs Estimated Fiscal Deficit at 7.6% for FY 2020-2021

The fiscal deficit of the government of India will touch 7.6 per cent in the Financial Year 2020-2021 as per the credit rating agency Ind-Ra. This is double the budget estimates made by the central government for this year. The reasons assigned for this are shortfall in revenue collection due to COVID 19 pandemic around the world.

Highlights                                                                                                                                          

As per the report of the credit rating agency, the combined fiscal deficit for the central government and the states will be around 12.1 per cent for 2020-21 where the states will contribute around 4.5 per cent. The announcement of the government regarding Rs 20 lakh crores relief package has also upset the fiscal deficit target of the government.

Regarding the GDP figures, the agency has stated that it will contract by around 5.3 per cent and the states like Assam, Goa, Gujarat and Sikkim are going to see a double-digit slowdown in this financial year. Another major reason behind this will be the reduction in remittances this year. Most of the Indians staying abroad are returning and therefore, there will be very few working outside the country. So, the states receiving a major chunk of this remittance will also get affected due to the ongoing situation.

The manufacturing sector is also expected to see a delayed recovery owing to the reverse migration of workers from the big cities of the country. The wages of the workers may also see an upward trend due to this.

What is Fiscal Deficit?

It is defined as the difference between the expenditure of the government and the receipts of the government. This is equal to the money that the government needs to borrow in a year. There will be fiscal surplus if the revenues exceed the expenditure of the government. The gross fiscal deficit is a very important indicator for understanding the overall financial health of an economy.

Ind-Ra

India Ratings and Research is one of the premier credit rating agencies in the country. It covers corporate issuers, financial institutions including banks and insurance companies, finance and leasing companies, managed funds, urban local bodies and structured finance and project finance companies.

It is a wholly-owned subsidiary of Fitch Group.

Month: Current Affairs - July, 2020