CARE Ratings Sees Fiscal Deficit Widening In FY 2022 From Budget Estimates

CARE Ratings estimates a nominal GDP growth of 12.2% for FY22 (9.2% growth in real GDP). The increase in the quantum of fiscal deficit coupled with the decline in the GDP would potentially push up the fiscal deficit to 7.5% to 7.7% of GDP in FY22 which is a 0.7% to 0.9% increase over the budget estimate, the ratings agency has said.

"As such, the fiscal consolidation intentions of the government would necessarily have to be deferred," the ratings agency has said.

"The fiscal deficit for FY22 has been budgeted at Rs. 15.06 lakh crs and 6.8% of GDP. The fund shortfall (due to additional expenditure and lower income) would push up the fiscal deficit to Rs. 16.41 lakh crs to Rs. 16.87 lakh crs. The nominal GDP for FY22 was estimated to be Rs. 222.9 lakh crs which tantamount to a 14.4% growth over FY21. There is a downside risk to this growth estimate given that this projection was made before the onset of the second wave of the pandemic," the ratings agency has said.

The ratings agency believes that a question mark hangs over disinvestment, while revenue will see slippages and expenditure is likely to be higher.

"Additional expenditure over the budgeted expenditure would be incurred during the year towards welfare programmes, employment support and relief to most impacted sectors. We estimate that this additional expenditure will be in the range of Rs.0.49 lakh crs to Rs. 0.66 lakh crs. This will be for NREGA, health, welfare and other relief to specific sectors (which can also partly be in tax cuts instead of direct expenditure as on covid related items). Schemes like interest rate subvention can be considered to help the SMEs. As the vaccination drive intensifies the government may have to import doses at market prices. This amount can again increase," CARE Ratings has said.