“In a reiteration of the strained fiscal situation, the fiscal deficit of the Government of India soared further to Rs9.1 trillion by end-September 2020, 115% of the full-year budget estimate. The main culprit behind the fiscal slippage was the contraction of 32.5% in revenue receipts, amid a discouraging 12% de-growth in capital spending, and a lack-lustre 1% growth in revenue expenditure in H1 FY2021,” Aditi Nayar, Principal Economist, ICRA Ltd said.
In an encouraging trend, the de-growth in corporation tax eased, and income tax posted a small growth in September 2020, mirroring the recovery displayed by a number of non-agricultural lead indicators in September 2020.
The monthly expenditure trends revealed a discordant sharp contraction in both revenue and capital expenditure in September 2020, suggesting that the expenditure management restrictions are outweighing the fiscal support measures that have been announced so far. We remain circumspect regarding the extent of fiscal support that should be factored into the forecasts of an economic recovery in H2 FY2021, Aditi Nayar added.
Despite all the liquidity measures announced by the RBI, G-sec yields may harden somewhat in the immediate term.