Fiscal deficit to be at 7.8%: Fitch

Context

• In a recent development, Fitch Solutions, an affiliate of Fitch Ratings cut its estimate for India’s FY21 fiscal deficit to 8% of GDP from 8.2% projected earlier.

Key points

• It anticipated higher revenue receipts and lower government spending.
• This was mainly driven by a strong recovery in tax revenues during Q2FY21.
• The rating agency expects India’s economy to contract by 10.5% in the year ending March 2021 and growth to rebound to 11% in FY22.

Fiscal Deficit

• Fiscal Deficit is the difference between the total income of the government (total taxes and non-debt capital receipts) and its total expenditure.
• A recurring high fiscal deficit means that the government has been spending beyond its means.
• Revenue receipts of the government: Corporation Tax, Income Tax, Custom Duties, Union Excise Duties, GST and taxes of Union territories, Interest Receipts, Dividends and Profits, External Grants, Other non-tax revenues and Receipts of union territories
• Expenditures of the government:Revenue Expenditure, Capital Expenditure, Interest Payments and Grants-in-aid for creation of capital assets