India will struggle to rein in fiscal deficit

Significance

The fiscal deficit is projected to be 9.5% of GDP in 2020/21 -- compared with a budgeted 3.5% -- narrowing to 6.8% in 2021/22 and 4.5% by 2025/26. The government is counting on increased tax revenue and receipts from divestment to help it stick to this fiscal ‘glide path’.

Impacts

• Increased spending on health and well-being should at least create more jobs in the public health system.
• Delhi will count on a return to high levels of GDP growth to help reduce the government debt-to-GDP ratio.
• The government may find it difficult to realise its goal of pushing through privatisation of Air India within the first half of 2021/22.