With Rs 20-trn package, fiscal deficit to balloon to 7.9% in FY21: Report

“We estimate a 4.5% direct impact on fiscal deficit purely because of revenue shortfall / automatic fiscal stabilizer and a 0.9% indirect effect because of GDP change,” the SBI report says

With the government’s Rs 20 trillion stimulus package, the country’s fiscal deficit is likely to be more than double to 7.9 per cent in the current financial year, according to an SBI research report. The report had earlier estimated the fiscal deficit to be 3.5 per cent of GDP this fiscal. The government has announced a cumulative package of Rs 20 trillion, which is nearly 10 per cent of GDP to provide relief to various segments of the coronavirus-hit economy.

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“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 per cent of GDP), we now revise our baseline fiscal deficit (excluding extra-budgetary resources (EBR)) to 7.9 per cent of the revised GDP in FY21 from 3.5 per cent earlier, owing to lower revenues and higher expenditure against the backdrop of COVID-19 pandemic,” the SBI’s research report Ecowrap. said. Baseline fiscal deficit based on CSO’s earlier estimates of GDP is around 7.1 per cent of GDP, it added.

“We estimate a 4.5 per cent direct impact on fiscal deficit purely because of revenue shortfall / automatic fiscal stabilizer and a 0.9 per cent indirect effect because of GDP change,” the report said. The government Rs 20 trillion package includes Rs 1.7 trillion of fiscal stimulus announced in the first phase, Rs 5.6 trillion stimulus provided through various monetary policy measures and Rs 5.94 trillion through the second phase, implying Rs 6.70 trillion package is still to be announced.