COVID impact: Will Centre announce another stimulus package?

It is unlikely that the country can keep fiscal deficit at 3.5% of GDP. Experts say it may climb up to 8%. So a stimulus may just be round the corner

The latest worries over India’s fiscal health emerged after Sitharaman announced the largest ever cut in corporate tax rates on Friday during market hours. The headline corporate tax rate was brought down from 30% to 22% with effective tax rate settling at 25.2% from 34.9% earlier. Photo: PTI
Finance Minister Nirmala Sitharaman had set the fiscal deficit target of 3.5% when she presented the Budget for the current financial year.

Burdened by economic implications of the COVID-19 pandemic, the government is unlikely to achieve its target of keeping fiscal deficit at 3.5 per cent of the Gross Domestic Product (GDP).

The government has so far not made any official statement on revising fiscal deficit target for the current year.

Finance Minister Nirmala Sitharaman had set the fiscal deficit target when she presented the Budget for the current financial year, as reported by NDTV. Government sources say they cannot estimate how big the deficit would be, but it is likely that the government may provide another economic stimulus package with an “open mind”.

The Union government’s fiscal deficit for the five months (April to August) stood at INR 8.7 lakh crore, or 109.3 per cent of the budgeted target for the current fiscal year ending in March 2021. Net tax receipts in the five months through August declined by about 30 per cent year on year to INR 2.84 lakh crore, even though fuel taxes rose. Experts say that coronavirus has had an unprecedented impact on the economy which has failed to pick up despite the government providing economic packages at intervals since lockdown. The deficit, they predict, may exceed 8 per cent of GDP in the 2020/21 fiscal year.

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Aditi Nayar, economist at ICRA, the Indian arm of Moody’s rating agency, told NDTV:”Five months of data reveal a sordid tale. The deficit for the whole year could spike to INR 14 lakh crore against a budgeted estimate of INR 8 lakh crore.”

The Indian economy may post its worst performance since 1979 with the forecast suggesting the economy may shrink up to 10 per cent in the current fiscal year.

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