Combined fiscal deficit to cross 13%; govt debt to jump over 80%: Report

The Covid-induced growth contraction and additional spending to support the needy amounting to a little over 2% of the economy are likely to push the combined fiscal deficit to 13% of GDP this fiscal

The pandemic-induced growth contraction and additional spending to support the needy amounting to a little over 2 per cent of the economy are likely to push the combined fiscal deficit to 13 per cent of GDP this fiscal - nearly double of the past year, according to a report.

Similarly, these numbers will see the government debt, which has been under 70 per cent of GDP for long, shooting past the 80 per cent mark this year to Rs 75.6 lakh crore or USD 1.01 trillion, making the country the second most indebted in Asia after China.

The cumulative fiscal deficit of the Centre and states stood at over 7 per cent of GDP in FY20 as against an average 6.6 per cent in the previous five years, as the Centre maintained the deficit below 4 per cent for four years from FY16 to FY19, before a cocktail of bad data -- revenue and higher spending -- pushed it to 4.6 per cent in FY20.

"The pandemic related pressures might see the combined fiscal deficit jump to 13 per cent of GDP this year," house economists at Singaporean lender DBS led by Radhika Rao said in a note on Friday.

It can be noted that general government debt levels have come down from the highs, averaging around 70 per cent of GDP for the past three years.

"But due to the pandemic-led impact on growth shock and the resultant lift in borrowings, debt levels are expected to climb past 80 per cent this year," the report said.

As of July-end 2020, the total quantum of outstanding central government securities (bonds and T-bills) stands at Rs 75.6 lakh crore or USD 1.01 trillion, while that of the states called state development loans stood at Rs 34 lakh crore or USD 459 billion, nearly half of the G-Secs.

Among the states, the top five issuers in FY19 were Maharashtra, Uttar Pradesh, Tamil Nadu, Bengal and Andhra Pradesh, accounted for more than half the total issuances, and top 10 states made up almost 75 per cent of the total.

According to finance ministry data on the ownership pattern of G-Secs, as of June 2020, commercial banks own 40 per cent of the outstanding G-Secs issuances, followed by insurance companies (25 per cent), the Reserve Bank (15 per cent) and foreign investors (2.4 per cent). This is vastly higher than the December 2019 ownership numbers.

For SDLs, more than 80 per cent of the ownership is with commercial banks, insurance companies and provident funds in FY20.

The current FPI limit is at 6 per cent in G-Secs and 2 per cent in SDLS, of outstanding securities. In rupee terms, the ceiling will stand at Rs 3.4 lakh crore (general and long-term) by March 2021 and Rs 74,700 crore for SDLs.