India to see fiscal deficit slippage in FY22: Fitch

Fitch Solutions on Friday revised its forecast for India's deficit to 8.3 percent of GDP in FY22 (April 2021 to March 2022) from 8 percent previously.

Fitch Solutions on Friday revised its forecast for India's deficit to 8.3 percent of GDP in FY22 (April 2021 to March 2022) from 8 percent previously. This puts the forecast even further from the government's 6.8 percent deficit projection for FY22 made in the February Union Budget.

"The main driver of deficit forecast revision is a downward revision to our outlook for revenues, given that the flare-up in Covid-19 cases and containment measures in place will hamper economic recovery, which will have a negative impact on fiscal revenues," said Fitch. It maintained government expenditure forecast at Rs 34.7 lakh crore in line with the government's Rs 34.8 lakh crore projection for FY22.

The forecast represents a 1 percent increase in spending versus FY21 revised estimates which were already 13.4 percent more than FY21 budget estimates and 30 percent higher than actual FY20 levels. The government's spending projection reflects the intention to maintain its high pandemic-period spending so as to bolster pace of economic recovery.

Based on the FY22 Union Budget, key spending areas planned for were infrastructure (transport, urban development, and power), healthcare, agriculture, and rural development. However, given the flare-up in Covid-19 infections, which has since overwhelmed the healthcare system, Fitch expects there to be reallocation of resources in favor of healthcare spending this fiscal year.

Healthcare spending is projected to be Rs 74,600 crore, 2.1 percent of total planned FY22 expenditures, and this will likely come in higher than projected. Another area which we expect to see increased spending is on the rural employment scheme -- Mahatma Gandhi National Rural Employment Guarantee (MGNREG) scheme.

Fitch revised its revenue forecast to Rs 16.5 lakh crore, down from Rs 16.9 lakh crore previously on the back of an impaired outlook for economic recovery in FY22 as a result of the ongoing health crisis. "Our less optimistic view on the Indian economy is also reflected in our real GDP growth forecast of 9.5 percent in FY22, a full percentage point below the government's 10.5 percent projection. A weaker economic recovery will weigh on the recovery in revenue collection."

Finally, the agency forecast public debt to GDP to fall to 88 percent in FY22 (revised slightly from 87.7 percent previously) from the government's estimate of 89.8 percent in FY21. 

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