Union Budget 2021 should focus on putting economy back on track, not on arresting fiscal deficit, says India Ratings

Mumbai: The forthcoming Union Budget should focus more on putting the economy back on track and not too much on arresting fiscal deficit, which is seen at 6.2 percent in 2021-22, down from 7 percent this year, according to a report.

The Union Budget 2020-21 had estimated fiscal deficit at Rs 7.96 lakh crore or 3.5 percent of GDP, but India Ratings sees it printing in at Rs 13.44 lakh crore or 7 percent if the government cleared its payables and roll over some portion of expenditure to 2021-22.

However, the 2021-22 budget is likely to project a fiscal deficit of 6.2 percent but that will be achievable if nominal growth comes in around 14 percent and real growth prints in at 9.5-10 percent, India Ratings chief economist Devendra Pant said in the report.

The report pegged growth at 9.6 percent for 2021-22 and (-) 7.8 percent for the current financial year 2020-21.

The government adopted a lose fiscal policy due to the coronavirus pandemic and announced a number of policy measures under Atmanirbhar Bharat packages to support the economy.

The rating agency said the fiscal impact of the economic packages worked out to be about Rs 3.5 lakh, or 1.8 percent of GDP. Even without this package, Ind-Ra had estimated that FY21 will witness a revenue shortfall of Rs 60,000 crore due to aggressive estimation of revenue receipts, it added.

“Given this, it was clear that FY21 will have a significant slippage from the budgeted fiscal deficit of 3.5 percent of GDP due to three factors,” it said.

The three factors are: A reduction in the size of the economy from Rs 224.89 lakh crore in FY21 budget to an estimated at Rs 194.82 lakh crore now, which is down 13.4 percent; lower-than-budgeted revenue growth; and higher expenditure to offset adverse impact of the pandemic, it added.

Also, the economy was on a secular fall from 2017-18 leaving fiscal deficit under pressure, letting it jump 4.6 percent in 2019-20 from 3.5 percent in 2017-18.

Revenue receipts have been consistently falling. Fiscal deficit at end-November 2020 was Rs 10.76 lakh crore as compared to the Budget Estimate of Rs 7.96 lakh crore, which is 135.1 percent of the estimate, it said.

Revenue receipts were only Rs 8.13 lakh crore, which is the lowest in the past three years, and only 40.2 percent of the estimate and tax revenues were 42.1 percent of the estimate, while non-tax revenues were much lower at 32.3 percent, it added.

April-November revenue receipts were 17.5 percent lower, while tax revenue, non-tax revenue and non-debt capital receipts were down by 8.3, 46.6 and 37.5 percent from 2019-20, respectively.

On the other hand, net tax revenue is lower by 8.3 percent in April-November.

Based on the current trend of revenue and capital receipts, 2020-21 revenue receipt is likely to be Rs 16.50 lakh crore and Rs 3.70 lakh crore lower than the estimate. Capital receipt is expected to be lower by Rs 1.9 lakh crore, leading to an overall shortfall of Rs 5.60 lakh crore in receipts in 2020-21.

Based on grant-wise expenditure trend, the report estimates revenue expenditure in 2020-21 to be Rs 26.65 lakh crore as against a Budget Estimate of Rs 26.30 lakh crore.

Capital expenditure is expected to be at Rs 3.64 lakh crore as against the estimated Rs 4.12 lakh crore, while total expenditure at Rs 30.29 lakh crore as compared with the budgeted Rs 30.42 lakh crore, it said.