InvestorQ : Why has the government gone for such a high fiscal deficit targets for the 2 years?
Arti Chavan made post

Why has the government gone for such a high fiscal deficit targets for the 2 years?

Answer
image
Rutuja Nigam answered.
4 months ago
Follow

Well before the budget was announced, the fiscal deficit target was already being pegged at around 7% for FY21 and about 4.5% for FY22. What changed in the budget was that the government has been a lot more aggressive and set the fiscal deficit at 9.5% for FY21 and at 6.8% for FY22. This of course entails heavy borrowing by the Indian government.

The fact, that the actual number announced is nearly 250 bps above these estimates has two implications. On the positive side, it means that the government is being bold and also transparent. Remember, food subsidy will now be part of fiscal deficit. The second side if such a fiscal deficit target is too steep for a country like India to be able to afford.

While temporary divergences are understandable, for growing economies like India too much fiscal deficit is not a really good idea. Economies like the US and Japan with high levels of per capita income can afford huge fiscal deficits for a longer period of time but India does not have that kind of luxury available. Typically, foreign institutions have been positive on India if fiscal prudence is followed.
0 Views