With the adverse effects the pandemic had on the Indian economy, the Central government is likely to work towards fixing the fiscal deficit. From an expected fiscal deficit of seven-eight percent of GDP in 2020-2021, the Centre is likely to lay down a path in the upcoming budget to reduce it to four percent of the GDP by 2025-2026.

This means that the government is set to deviate from the long-standing medium-term target of 2.5-3 percent of the GDP, which was mandated by the Fiscal Responsibility and Budget Management Act. The above mentioned changes will require amendments to the Fiscal Responsibility and Budget Management (FRBA) Act through the Finance Bill, 2021.

“Aiming for a three percent medium-term target is not possible now. This year the deficit can go up to eight percent. In the next five years, even if we achieve somewhere around four percent, that will be good enough, we have to spend again in 2021-22, a lot of spending commitments, to revive the economy,” a top government official told Moneycontrol.

Finance Minister Nirmala Sitharaman said that the budget 2021-22 will see a massive public sector investment and expenditure push. This investment will also be on infrastructure projects and the healthcare sector. She also mentioned keeping the fiscal consideration aside.

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