Some measures of the fiscal situation for the first half of 2020-21 are now visible. Gross tax revenues of the union government were down by 21.6%, spending by the union government was flat, and the gap was made up using an increase in borrowing. This has induced daunting levels of borrowing per month when compared with tax revenues. This helps us interpret the fiscal policy decision of holding expenditure flat when faced with the pandemic.
Fiscal stress is present at union, state and city governments. We show one anecdote, about fiscal stress in the city of Bombay.
From the lowest value of May 2020, a sharp revival of tax revenues is visible, in line with the recovery of the economy.
These developments will have an impact upon various elements of the economic environment of coming years: the credit rating, the elements that must fall into place for a return to sustained growth, the possibilities for the current account deficit, and scenarios for the debt/GDP ratio.
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