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India’s fiscal deficit widens, slowing government expenditure remains a concern

The Centre’s fiscal deficit for April-November 2020 soared to Rs 10.76 lakh crore, or 135 percent of the full year budgeted target of Rs 7.96 lakh crore, as the government’s finances continued to be stretched due to lower revenues arising from the COVID-19 pandemic and the economic slowdown.

What is noticeable, however, is that while expenditure in November shot up to be the highest in five months, overall consolidated spending levels are much below what analysts expect in a year when there has been clamour for increased public spending.

Total expenditure for the first eight months of the current fiscal year was Rs 19.06 lakh crore or 62 percent of the budget size of Rs 30 lakh crore. This compares to 65.3 percent for the same period last year, when total expenditure for April-November 2019 was Rs 18.20 lakh crore versus a budget size of Rs 27.9 lakh crore.

While the Centre has increased its capital and revenue spending commitments as part of the Aatmanirbhar Bharat and Gareeb Kalyan announcements, it is clear that some expenditure rationalization is taking place as well.

“This year, they have more justification than ever to ramp up public expenditure. They can take the fiscal deficit to 10 per cent of GDP, owing to higher deficit and lower GDP, and it would be perfectly understandable. However, the Centre is not spending as much as it should,” said an independent economist. The person did not wish to be named as he currently advises the government on a number of matters.

“While capex growth has improved to an encouraging 13 percent, revenue expenditure growth has been curtailed to 4 per cent in April-November 2020. The continuing considerable 17 percent decline in revenue receipts coupled with the subdued disinvestment receipts has engendered the massive fiscal deficit in FY20 so far,” said Aditi Nayar, Principal Economist with ICRA Ltd.

“The month of November saw a sharp and encouraging ramping up of the Government of India’s spending, with the monthly outgo recording a year-on-year expansion of 32 per cent for revenue expenditure and nearly 250 per cent on a small base for capital expenditure. A sustenance of this trend will bolster economic activity, and help the Indian economy exit the recession in the coming quarter,” she said.

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