Domestic rating agency CARE Ratings NSE -1.13 % pegged India’s combined fiscal deficit at 13-13.4% of gross domestic product (GDP) for the current fiscal even as it assumed no further fiscal stimulus.
While the Centre’s deficit is expected to touch Rs 17.8 lakh crore against the target of Rs 8 lakh crore, the states are likely to record a deficit of Rs 7.73 lakh crore over the budgeted Rs 6.35 lakh crore, the agency said in a report on Monday.
This implied a deficit of about 9% of GDP for the central government against the budgeted 3.5% and at 3.9% for the states over the budgeted 2.8%, resulting in a combined deficit of more than double the year’s target of 6.4%.
Further, the additional borrowing of Rs 97,000 crore that states will have to undertake due the shortfall in goods and services tax (GST) compensation from the Centre would push up the states’ deficit to 4.4% of GDP or the combined deficit to 13.4%, depending on how it is accounted for, the report said.
“We expect it (combined deficit) to be in the region of 13% in the technical sense as the Rs 97,000 cr of direct borrowing by states is not being treated as fiscal deficit. But the effective number will be around 13.4% including this amount as finally it adds to the debt of all governments,” it said.
According to unaudited financial reports of 16 states for April-July, there was a sharp 20% fall in tax revenue and a 27% drop in non-tax revenue year-on-year, which was partially offset by a 44% increase in grants and contributions from the Centre over the corresponding period last year.
Overall, these states were facing a 116% increase in their aggregate deficit till July compared to the previous year.
In terms of the Centre’s finances, the report put additional expenditure for FY21 from the Pradhan Mantri Garib Kalyan Yojana (Rs 1.67 lakh crore), the announcements made in May regarding the Atmanirbhar Bharat package (Rs 80,000 crore), extension of free rations till November (Rs 90,000 crore) and the transfer to the states in the supplementary demand for grants (Rs 46,600 crore) to amount to Rs 3.8 lakh crore.
Widening the gap further, CARE Ratings expected the union government’s tax revenue to fall short of its FY21 target of Rs 16.4 lakh crore by Rs 3.9 lakh crore while its disinvestment target shortfall would be Rs 1.2 lakh crore against the budgeted Rs 2.1 lakh crore.