Fiscal Deficit (Union government)

India's fiscal deficit breached target to hit 4.6% with more daunting task awaiting in FY2020-21.

Published monthly by Controller General of Accounts (CGA), Ministry of Finance, GoI. Updated till April 2020. (Published on June 01, 2020)  

Recent Data Trend

India missed its fiscal deficit target for the fiscal year 2019-20 (FY2019-20 represents April 2019 to March 2020), which came at 4.6% of GDP, higher than its revised target of 3.8%, on the back of a lower tax revenue collection. In absolute terms, the fiscal deficit at the end of March 31, 2020, stood at Rs.9.4 trillion against Rs.7.7 trillion in the revised estimates of the budget.

Even before the COVID-19 crisis hit the economy, a slowdown in India's GDP growth since June quarter of 2018 affected the government's tax collection. The tax revenue measured in terms of 12month average YoY has been seeing a downward trend since June 2018. The COVID-19 crisis only made things worse and added more pressure to government finances. The revenue receipts during the year reached only 90% of the revised budget estimate.

Concerns of low tax revenue collection prompted the government to stay prudent about fiscal spending. However, we see that the 12month average YoY growth in the government's total expenditure has been accelerating since June 2019 and it has stood at a three-year high of 16.2% in March. It suggests that the government has ramped up its spending and, in particular, its revenue expenditure during the ongoing crisis. However, given that the current situation parallels the 2008 Lehman crisis, the growth in government expenditure is relatively low when compared to the growth between the years 2008 and 2009 following the Lehman crisis.

With recently announced fiscal stimulus package of Rs. 20 trillion and various measures to counter the impact of the COVID-19 pandemic, along with a probable slowdown in GDP growth, the government's financial position is expected to deteriorate further in the current fiscal year. The rolling sum of India's gross fiscal deficit as a % of GDP widened further to 5.2% in April 2020. In our view, given the current economic crisis, the government should not pursue the path of fiscal consolidation and should do everything it can to drive economic growth.

Brief Overview

The central government accounts are divided mainly into two parts- Revenue Account and Capital Account. The revenue account consists of revenue receipts and revenue expenditure. Revenue receipts are accumulated from tax revenues (both via direct and indirect taxes) and non-tax revenues (interest payments dividend & profits etc.), while the revenue expenditure is broadly the expenditure which doesn't result in the creation of assets (administrative expenses of government, interest charges on debt incurred, subsidies etc.)

Similarly, the capital account consists of capital payments and capital expenditure. The capital receipts mainly include recoveries of loans & advances and earnings from disinvestment while the capital expenditure is the expenditure on acquisition of buildings, lands, and investments in bonds, shares etc.

The excess of expenditure over receipts (on both accounts) gives the fiscal health measure of the government known as the gross fiscal deficit (GFD). Another important gauge of fiscal operations is the revenue deficit (excess of expenditures over receipts in the revenue account). The increase in revenue deficit generally implies that the government is increasingly using its finances to fund its recurring non-productive expenses and no actual asset creation is taking place. To discipline the government in its financial management, the Fiscal responsibility, and Budget Management (FRBM) Act was brought in during the UPA regime in 2003. This act aimed at bringing fiscal discipline by reducing India's fiscal deficit (5.7% of GDP in 2003) to 3% of GDP and elimination of revenue deficit by March 2008. (Revenue deficit stood at 2% of GDP or fiscal year 2016-17)

Government Accounts- Annual

Note: The years represent the fiscal years so 2017 denotes FY 2017 (April 2016-March 2017). The values for FY 2019 and FY 2020 represent the budget estimates for the fiscal year April 2018- March 2019 and April 2019- March 2020. 


   Revenue Receipts

The earnings made by the government which neither create liabilities or reduce assets of the government. For example, receipts from tax collections, interest on investments, dividend earnings and earnings from services provided.

Revenue Receipts = Tax Revenue + Non-Tax Revenue

   Capital Receipts These are capital receipts which do not create debt for the government such as recovery of loans made and selling a stake in a public company.
   Non-capital expenditure It is the expenditure made by the government on a recurring basis such as administrative expenses, interest payments on loan taken by the government, pensions, subsidies etc. In government official statistics it is called 'Revenue expenditure'.
   Capital expenditure It is a productive, asset-creating (or liability reducing) long-period, non-recurring expenditure of the government. For example; expenditure on creating the infrastructure (roads, electricity dams etc.), loans made to state governments and repayment of loans by the central government (reducing liability).
   Fiscal Deficit The fiscal deficit of the government is the difference between the total expenditure incurred and the total non-debt capital receipts (total receipts minus the earnings from borrowing) of the government. It indicates the total borrowing requirements (incl. the need for interest payments) of the government.
   Revenue Deficit It is the difference between the revenue receipts and the revenue expenditure of the central government. Revenue deficit indicates the excess amount of expenditure by the government to fund current consumption needs rather than for productive asset-creation.
   Primary Deficit It is the difference between the fiscal deficit of the current year and the interest payments on the previous borrowings made by the government. It indicates how much of the government borrowing is going to meet expenses other than interest payments.


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Next Release Date: June 30th, 2020