The higher expenditure needed to stimulate economic revival would require the government to be flexible on the fiscal deficit target of 3.3% of GDP in 2021-22, CARE Ratings has stated in its report on Budget Expectations.
"We expect the fiscal deficit to be budgeted at 5 to 5.5% for the year which would be an improvement from the estimated fiscal deficit of 7.8% to 8.4% in 2020-21. There can be a downward bias for the latter depending on the expenditure cuts that could be reckoned in the last two months of the year. The pre-pandemic target of containing the fiscal deficit at 3.1% of GDP by 2022-23 would necessarily have to be revisited given that prolonged higher government spending would be required for sustainable economy recovery." CARE Ratings has stated.
According to the ratings agency, a feasible roadmap for reigning in the in the deficit would have to be clearly outlined.
"Market borrowings are being relied upon to finance the fiscal deficit. For 2020-21, the gross market borrowings was budgeted at Rs 7.8 lakh crores but the government revised it to Rs 13.1 lakh crores on account of the pandemic led disruptions that severely constrained government revenues and necessitated higher commitments from the central government (including the additional transfer of Rs 1.1 lakh crs to the states as part of the shortfall in GST compensation). Pursuant to our expectations of fiscal deficit at 5-5.5% of GDP, nominal GDP growth of 15% and repayment of market borrowings of around Rs 3.1 lakh crores in 2021-22, we expect the gross market borrowings at around Rs 10.1 - 11.3 lakh crores for FY22(BE)," the ratings agency has noted.
According to CARE Ratings, the GSec yields could be pressured to some extent owing to the elevated level of borrowings but the Reserve Bank of India in recent times has managed to keep the yields range-bound and is likely to continue to do so.