New Delhi: The government will restrict the fiscal deficit below 9.5% of the GDP in the current fiscal at any cost, said senior officers in the ministry of finance while clarifying that the rise of 21% in the fiscal deficit number for the FY 2019-20 over the revised estimate was on account of Covid-19 related relaxations and GST payment liabilities.
According to the revised estimate of fiscal deficit for FY 2020-21, the Union government’s fiscal deficit would be over Rs 18.48 lakh crore in the current fiscal, a massive increase of Rs 10.52 lakh crore over the budget estimate of Rs 7.96 lakh crore.
This year’s fiscal deficit was expected to be higher than the budget estimates given by finance minister Nirmala Sitharaman last year due to the adverse economic impact of Covid-19 global pandemic. Several economists estimated it in the range of 6-7% of the GDP against the budget estimate of 3.5% of the GDP.
However, a sharp revision in the fiscal deficit number for FY 2019-20, from the revised estimate of Rs 7.66 lakh crores to Rs 9.34 lakh crore (provisional actual), led to the concerns that there could be similar revisions in this year’s fiscal deficit figure as well when the finance bill will be passed after a few months, taking it beyond 9.5%.
In response to a question by ETV Bharat, Economic Affairs Secretary Tarun Bajaj asserted that the government would keep the fiscal deficit number for the current fiscal below the revised estimate of 9.5% of the GDP at any cost.
“I am amazed at your question that you are imputing motives to our numbers here. Numbers have been very transparent this time,” said Tarun Bajaj.
“Let me assure you that they (fiscal deficit) will be 9.5%, it could go to 9.45% but it will not go beyond 9.5%,” Bajaj told ETV Bharat.
Expenditure secretary TV Somanathan also clarified the reasons behind the increase of Rs 1.68 lakh crore in the fiscal deficit for FY 2019-20 as fiscal deficit went up from Rs 7.66 lakh crore (3.8% of the GDP) to Rs 9.34 lakh crores (4.6% of the GDP).
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Fiscal deficit puzzle
A sharp rise of 21% in the revised estimate of fiscal deficit for FY 2019-20 was puzzling as finance minister Nirmala Sitharaman had already invoked the escape clause recommended by NK Singh Committee, which allows the government to relax the fiscal deficit target by half a per cent under exceptional circumstances.
Using the escape clause, the finance minister relaxed the fiscal deficit target from Rs 7.04 lakh crore (2019-20 BE) to Rs 7.67 lakh crore (2019-20 RE).
However, according to the actual number given in the Budget 2021-22, the fiscal deficit for FY 2019-20 went up from 3.8% to 4.6%, from Rs 7.67 lakh crores to Rs 9.34 lakh crores.
“Last year's number went up for the two reasons: one the month of March was fully affected by the Covid. That was the peak month for the tax collection,” said TV Somanathan, expenditure secretary.
In response to ETV Bharat’s question, the expenditure secretary clarified that the Centre’s revenue collection was affected due to the extension of payment of dates by the government in March 2020 on account of Covid-19.
“Before the end of March when taxes became due, the Government of India extended the date for payment of both the direct and indirect taxes,” Somanathan said.
The senior official in the ministry of finance said that a considerable amount of revenue, which was expected to come in the previous fiscal year, did not come by design as the compliance dates were extended due to the outbreak of Covid-19 pandemic.
Another reason, TV Somanathan said, was the payment of GST compensation to States that were adjusted in FY 2019-20 subsequent to the finance minister’s budget speech last year.
“The finance minister had announced in her budget speech that we would make the corrections necessary to pay the amount that was set to be due to States under the GST compensation,” Somanathan said.
“These are the two reasons because of which the number went up in 2021 to make up for the compensation to States which was paid from the amount of 2019-20 and secondly due to an unexpected revenue shortfall in the month of March,” explained the senior officer.
“There was no intentional under-projection of the deficit. Both were events, which happened,” he said.
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