FITCH LOWERS INDIA’S 2021 FISCAL DEFICIT FORECAST TO 7.8%

NEW DELHI: Fitch Solutions on Friday revised its forecast for central government’s fiscal deficit for the financial year (FY) 2020-21 to 7.8% from its earlier projection of 8.2%.

According to the report, this revised forecast was driven by a strong recovery in tax revenues during the second quarter of FY 2020-21.

According to Fitch Solutions, it “suggests a faster than previously anticipated path of recovery for fiscal receipts over the fiscal year.”

The company, however, said that it maintains that its views that the receipts in FY21 will be lower as compared to FY20.

However, it has revised its outlook for Central government expenditures to come in slightly below budget projections, as “revenue constraints will likely see some winding down of fiscal spending on a year-on-year basis over the second half of FY21.”

The fiscal revenue forecast in FY21 for the Central government has been revised to 18.2% decline, from the earlier forecast of 18.4%, as per the report.

“Total receipts staged a strong quarter-on-quarter (q-o-q) recovery in Q2FY21, coming in at ₹4,118 billion, a 168% jump from Q1 FY21, when India’s nationwide lockdown severely crippled economic activity and with it, fiscal receipts. That said, we highlight that total receipts in Q2FY21 was still down 25% year on year (y-o-y) despite improving from -47% y-o-y in Q1FY21,” it said.

The expenses of the Centre are also expected to rise by only 12.1% in FY21, versus 12.7% previously.

“Total expenditures fell by 18.7% q-oq to ₹6,634 billion in Q2 FY21, from ₹8,159 billion in the first quarter. We believe that high expenditures in the first quarter, which were up 13.1% y-o-y, was the result of a frontloading of government spending to aid the economy through the lockdown period from endMarch to June,” the ratings firm stated.