Fiscal deficit may fall to 4.75% in FY22

Mumbai: Although it is widely feared that India's fiscal deficit could reach around 7.5 per cent of GDP given the dislocation of the economy during the pandemic, we assess that the budgetary shortfall will be much lower than the consensus, Yes Securities says in its report.

That government has largely curtailed spending so far this year, when compared with the budgeted estimate of Rs 30 trillion.

The study does not see any spurt in spending during the remaining part of the fiscal year, considering that supply and demand side of the equation has started recalibrating and the economy is gaining traction. Though FY21 government revenues are expected to contract 10 per cent, expenditure growth will be relatively flat.

As a result, the report sees a fiscal deficit of 11.9 trillion or 6.1 per cent of GDP. As per the report, FY22, may witness the deficit falling significantly to 4.75 per cent given the anticipated jump in economic activity and revenues. A favourable base effect for FY22 will also project the government finances in a much better picture.

The report has projected that the corporate and income tax to expand by 35.7 per cent and 27.4 per cent respectively.

The thrust will likely be on non-tax revenues as well, where buoyant equity market conditions and abundant liquidity will aid government rake in around Rs 2 trillion from divesting stake in PSU mammoths like LIC, BPCL and additional CPSEs. Having said that the government will continue to strike a balance between growth and fiscal prudence.