Consolidated Fiscal Deficit May Reach 14% Of Gross Domestic Product (GDP) In 2020-21, Says Barclays

Budget 2021: The budget assumes major significance this year as the government will present one that has to deal with the economic fallout amid the COVID-19 pandemic. According to a recent research report by Barclays, Budget 2021 will focus on the revival of economic growth. Considering this, Barclays expects that the country’s consolidated fiscal deficit will reach 14 per cent of gross domestic product (GDP) during the financial year 2020-21 and will decline gradually over the next five years, amid the prioritisation of reviving growth in the near term. Out of the 14 per cent of GDP, the central government’s share will be 7.7 per cent, the state governments’ will be five per cent, and off-balance sheet items will have a share of 1.3 per cent. 

According to Barclay’s report – ‘FY21-22 budget preview: A multi-year repair job’, the solid rebound of the economy in the last two quarters justifies the government’s approach of adding stimulus only gradually, especially given the already stretched fiscal position. Through the government’s four fiscal stimulus packages announced in March, May, October, and November, Barclays expects that the country’s consolidated fiscal deficit could rise to as much as 14.0 per cent of GDP for fiscal year 2020-21, up from the previous estimate of 13.0 per cent of GDP.

The central government’s fiscal deficit is likely to reach 7.7 per cent of GDP from 4.6 per cent in financial year 2019-2020. Additionally, the states can likely record an aggregate deficit of five per cent of GDP, in line with the central government’s relaxed rules for state finances, while off-balance-sheet items are likely to register a deficit of at least 1.3 per cent of GDP. The government is expected to prioritize reviving economic growth from both a public welfare and a debt sustainability perspective, which means deficit reduction is likely to be only gradual.