Finance Minister Nirmala Sitharaman on Monday said the government estimates fiscal deficit of 6.8 per cent of the gross domestic product (GDP) in the next financial year beginning April 1.
The fiscal deficit in 2020-21 is estimated to soar up to 9.5 per cent. This is sharply higher than the 3.5 per cent that was projected in the Budget Estimates last year.
While unveiling the Budget 2021-22 in the Lok Sabha, the finance minister said the government proposes to bring down the fiscal deficit below 4.5 per cent of GDP by 2025-26. The government also plans to return to fiscal glide path by 2026, and plans to amend the Fiscal Responsibility & Budget Management (FRBM) Act to enable it to do so.
To fund the deficit, Sitharaman said the government plans to borrow Rs 80,000 crore during the residual two months of the current fiscal year. Gross market borrowings for the next year have been pegged at Rs 12 lakh crore. Gross expenditure is seen at Rs 34.5 lakh crore and the capital expenditure is expected to be Rs 4.39 lakh crore.
The lockdown to check the spread of virus adversely impacted economic activities, resulting in contraction in the economy by an estimated 7.7 per cent, which in turn led to a massive fall in government revenues. This led to the sharp rise in deficit and market borrowing.
Fiscal deficit is an indication of the government’s borrowing to meet the shortfall between expenditure and receipts from taxes and other sources. The bigger the fiscal deficit, the more market borrowings the government needs, which means lower funds available for the private sector to borrow.