A change in accounting practice means previous budgetary spending cannot be compared with current spending

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At one level, this would mean the 2020-21 budget would have a smaller fiscal boost than what is being suggested by a fiscal deficit of 9.5%. After all, at least some of the spending went towards so-called one-off payments, clearing back dues. For instance, the food subsidy in 2020-21 RE increased to ₹4.22 lakh crore from ₹1.15 lakh crore in the budget estimates for the year. It is only ₹2.42 lakh crore in the 2021-22 BE. Similarly, the fertiliser subsidy has gone up from ₹71,309 crore in BE 2020-21 to ₹1.33 lakh crore in RE 2020-21 and down to ₹79,529 crore in BE 2021-22.

A research note by Sonal Varma and Aurodeep Nandi, economists at Nomura Global Markets Research, has looked at this question in detail. “Due to this additional unforeseen accounting (the government discontinuing diverting spending to EBR), in our view, the revised estimate of fiscal deficit of 9.5% of GDP for FY21 cannot be directly compared to pre-budget projections. Rather, to gauge how much the government aims to spend in the remaining part of the year, we calculate the adjusted fiscal deficit that excludes this extraneous increase or FCI effect over and above regular spending. Even assuming a higher subsidy outgo in FY21 due to the pandemic, we estimate that the ‘FCI effect’ is likely to be around 1.4% of GDP. Consequently, the ‘true’ fiscal deficit for FY21 excludes this from the 9.5% of GDP target, and is probably closer to 8.1% of GDP”, the note says.

The note adds that the same logic would apply on the fiscal deficit figures for 2021-22 and the true fiscal deficit in 2021-22 is likely to be 6.1% of GDP against the BE estimate of 6.8%.