Fitch Solutions has revised its fiscal deficit forecast for India to 8.2 per cent from 7.2 per cent earlier due to quicker divergence in expenditures and non-debt receipts which saw the deficit exceed the full-year target in only four months.
Accordingly, including the state deficit, the total government deficit forecast for FY21 is 11.8 per cent of GDP. "Our revision is due to a higher than previously anticipated willingness of the government to spend amid weak revenue collection," it said.
"We expect the government to maintain its spending expansion through increased government securitiesissuances that will be absorbed by the banking sector under an increased statutory liquidity ratio (SLR) threshold up to March 31, which allows more funds to be invested in these securities."
The Reserve Bank of India's announcement that SLR for banks will be raised to 22 per cent of net demand and time liabilities up to March 31 from 18 per cent at present indicate the government will seek to ramp up its borrowing through bond issuances over the coming months with local banks being the bulk of the lenders.
"We maintain our FY21 central government revenue forecast at minus 18.4 per cent," said Fitch Solutions. Revenue collection over the first four months of FY21 suffered a major hit as a result of a slump in economic activity in light of the nationwide Covid-19 induced lockdown from March 25 to May 31.
"However, we expect a gradual recovery in the economy over the coming months to support improvement in revenue collection."
Non-debt receipts over the first four months of FY21 amounted to Rs 2.3 lakh crore, a 42 per cent year-on-year decline over FY20. The Centre's gross tax revenue also suffered, falling by 29.6 per cent over the first four months of FY21 to Rs 3.8 lakh crore from Rs 5.4 lakh crore in FY20.
Among indirect taxes, Centre Goods and Services Tax fell by 34 per cent over the period to Rs 92,900 crore while a slump in the trade as a result of lockdown restrictions also saw custom duties fall by 54 per cent to Rs 23,700 crore over the period.
However, a sharp increase in central excise duty on petrol and diesel from Rs 22.09 per litre and Rs 18.83 per litre respectively on March 14 to Rs 32.98 per litre for both categories by May 6, supported a 23.7 per cent rise in excise duties to Rs 67,900 crore over the period.
For direct taxes, corporate taxes recorded a fall of 39.2 per cent to Rs 53,700 crore and income taxes fell by 29.1 per cent to Rs 91,200 crore.
Fitch Solutions said it has revised its FY21 central government expenditure forecasts to 12.7 per cent over FY20 revised estimates from 6.5 per cent previously, putting in line with the FY21 Union Budget projections.
This is on the back of the Centre's commitment to maintain spending despite a wide revenue shortfall with spending maintained by additional market borrowing.
Over the first four months of FY21, total expenditures reached 34.7 per cent of FY21 budget estimates which suggests a consistent approach towards the disbursement schedule of funds as opposed to front-loading despite the ongoing economic crisis, said Fitch Solutions.
( With inputs from ANI )
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