India: Public finances (12-month sum, % of GDP)
India’s public finances remain fragile, though strengthening over the first four months of the current fiscal year (to 31 March 2022).
The central government’s fiscal deficit hit a high of 9.2% of GDP at the end of the 2020-21 fiscal year from an average of 3.8% of GDP over the previous five years. Over the same period, public debt has steeply risen, and is estimated to have reached a high of 88% of GDP in March 2021. The rapid deterioration of the public finances is the result of increased public spending in response to the Covid-19 crisis, but is also due to an extremely low fiscal base (total government’s receipts only reached 8.6% of GDP even before the pandemic).
Under such circumstances, one might have feared a deterioration of the India’s sovereign rating. To date, this prospect has receded slightly. For the first time since the 2011-12 fiscal year, the deficit only reached 21.4% of the full year target (6.8% of GDP) over the first four months of the current fiscal year. This good performance was the result in part of lower than expected spending, but more significantly of a substantial increase in receipts. At an annualised rate, these were equivalent to 9.2% of GDP, having averaged only 8.7% of GDP over the previous three years. Confirmation of this consolidation over the rest of the year would be fairly encouraging news.
