The COVID-19 pandemic has had a massive impact on government’s fiscal roadmap. Due to the COVID shock on revenues and expenditure, the government will be undertaking a major recalibration of the fiscal targets in the upcoming Budget.
The 0.5 percent escape clause in the FRBM law has become irrelevant as the slippages due to COVID are beyond this deviation. The 3 percent deficit target to be achieved by March 31 2021 as per the FRBM is also irrelevant in the current environment. The 40 percent debt-to-GDP ratio by FY25 is also unlikely to be achieved.
Against the target of 3.5 percent as of November end, the fiscal deficit is at 4.79 percent. However, the deficit is further estimated to slip to 7.5-8 percent due to the contraction in nominal GDP and government’s expenditure set to exceed the original budget estimate.
Government had envisaged a 3.3 percent fiscal deficit for FY22. However, it is likely to be revised in the coming Budget in the range of 5-5.5 percent. Consequently, the 3.1 percent aim set for FY23 is also out of the window. A number as low as this is unlikely to figure in the fiscal roadmap any time soon.