Finance minister Nirmala Sitharaman on Monday said the government is closely monitoring its fiscal deficit, which is estimated to spike to as high as 9.5% of gross domestic product (GDP) in FY21, thanks to the Covid-19 outbreak.
Addressing a virtual event of industry body PHDCCI, the minister said while the rise in fiscal deficit, in a way, was inevitable, “at the same time, it needs to be carefully tackled”, according to an official statement.
The Centre’s fiscal deficit shot up, as it was forced to offer relief packages in the wake of the pandemic despite a plunge in revenue collections. Even though the nominal GDP is expected to reverse a contraction and expand at 14.4% in FY22, the indispensability of continued spending to spur growth has forced the Centre to keep the deficit target elevated at 6.8% for the next fiscal as well.
The government has spent big “in those areas of activities which give a big multiplier effect”. In fact, “multiplier was the key” where the money was chosen to be spent, Sitharaman stressed.
Taking this objective forward, the government has budgeted capital expenditure at Rs 5.45 lakh crore for FY22, which is 26.2% higher than the RE of FY21 and 34.5% larger than the BE level for this fiscal. In contrast, at Rs 29.3 lakh crore, the budget estimate (BE) of revenue expenditure for FY22 is 3% lower than the revised estimate for this fiscal and 11.4% higher than the BE of FY21.
The finance minister said while the government can roll out a stimulus package to revive the economy, the crucial task of funding long-term infrastructure projects will be undertaken by the proposed development finance institution (DFI). However, since one DFI is can’t satiate the huge appetite of the entire infrastructure sector, the government will create an enabling set-up for even private-sector DFIs to come up, she added.
The Budget has proposed a capital infusion of Rs 20,000 crore into the DFI. Using this, it will likely raise resources up to Rs 5 lakh crore over the next few years and help finance infrastructure projects, apart from creating an entire eco-system around it.
Initially, the DFI will be wholly owned by the government, although it’s willing to dilute its stake to 26% once long-term investors come on board.