Budget gap may widen to 3.8% in FY20, breaches target

Budget gap may widen to 3.8% in FY20, breaches target

The reduction in nominal GDP estimates will push the government’s fiscal deficit higher by 12 basis points, or upwards of 3.4%, said Soumya Kanti Ghosh, chief economist at State Bank of India in Mumbai.

India’s budget deficit could widen to 3.8% of gross domestic product in the current fiscal year, breaching a target of 3.3%, according to a senior official.

The law allows the government to exceed the target by as much as half a percentage point, the official told reporters, asking not to be identified in line with rules. The government can also miss its target if it faces acts of war, a collapse in farm output, or the economy is undergoing structural reforms with unanticipated fiscal implications.

The government is facing a revenue crunch as economic growth slows, putting pressure on the budget. An official GDP estimate published Tuesday showed India’s economy will probably grow 5% in the fiscal year to March and post nominal growth of 7.5%. That’s lower than the 11.5% nominal growth the government forecast in its budget in July.

The reduction in nominal GDP estimates will push the government’s fiscal deficit higher by 12 basis points, or upwards of 3.4%, said Soumya Kanti Ghosh, chief economist at State Bank of India in Mumbai.

Prime Minister Narendra Modi’s government has already breached its deficit goals in the previous two years. The shortfall exceeded the target by 1 percentage point in the last fiscal year and by 3 percentage points the year before.

Reserve Bank of India Governor Shaktikanta Das told the Financial Express newspaper last month that economic conditions were appropriate for the government to invoke the clause that allows it to widen the deficit.

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