Centre's fiscal deficit to shoot up to 7.6% in FY21, twice the Budget tar get: Ind-Ra

NEW D ELHI: The Centre's fiscal deficit is ex pected to touch 7.6% in 2020-21, more than double the Budg et Estimate, a st he c ountry spends ex tra to minimise the impact of the COVID-19 pandemic w hile f acing a shortfall in r evenues, a r eport said.

At a comb ined l evel, th e fiscal defic it of the Cen tre and sta tes together wil l come a t 12.1%, with th e states contributing 4.5%, India Ra tings a nd R esearch said in the report.

It also said the go vernment has alr eady announced a stimul us pac kage damaging the fiscal math by 1.1%.

Calls are also going on f or a seco nd pac kage.The pandemic has r esulted in long lockdowns tha t c hilled all the economic activities.

The agency said India's gross domesti c pr oduct (GDP) will contract by 5.3%, while sta tes l ike As sam, Goa, G ujarat a nd Sikkim are expec ted to witnes sa double-digit contraction, it said.

With the g rowth an d re venues going down, the obvious impact will be on the fiscal defic it, which is considered an i mportant macroeconomic health indicator.

"The a ggregate central and sta te f iscal def icit in FY21 will inc rease to 12.1% of GDP (Centr e: 7.6%, states: 4.5%), mainly due to the ex pected shortfall in revenue collections ra ther than incr eased expenditure," it said.

India Ra tings and R esearch Chief Economist D K P ant said the pandemic hit at a t ime when the Indian economy was already experiencing a slowdown due to w eakness in consumption demand.

"It h as severely disr upted the suppl y side , as pr oduction and sale w ere allo wed only in th e ar eas c lassified as ' essential' duri ng the lockdown."

He said the sta tes r eceiving significant remittances - India is the biggest receiver of such f und tr ansfer b y any country's diaspora - will be impacted because return and/or repatriation of expatriates to India has its own consequences f or the Indian economy.

The growth slowdown will have a significant impact on the asset q uality of the financial sector , and both banks and non-banks would require more capital to continue lending, it said.

Reverse mig ration out o f cities and industrial to wns to their hometo wns will delay the man ufacturing sec - tor's recovery and may also translate into e levated wages, it th e ra ting a gency said.