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India faces ballooning fiscal deficit as pandemic hits taxes

NEW DELHI (Reuters) - India is staring at a ballooning fiscal deficit against an initial estimate of 3.5% of GDP in the current financial year as the coronavirus shrinks jobs and hits tax collection, government data showed on Wednesday.

A man counts rupee notes inside a shop in Mumbai, August 13, 2018. REUTERS/Francis Mascarenhas/Files

The federal fiscal deficit for the five months through August stood at 8.7 trillion rupees ($117.98 billion), or 109.3% of the budgeted target for the current fiscal year ending in March 2021.

Net federal tax receipts in the five months through August declined by about 30% year on year to 2.84 trillion rupees, even though fuel taxes rose.

The deficit is predicted to exceed 8% of GDP in the 2020/21 fiscal year, economists said, mainly due to a sharp economic contraction triggered by the pandemic.

“Five months of data reveal a sordid tale,” said Aditi Nayar, economist at ICRA, the Indian arm of Moody’s rating agency, adding the deficit for the whole year could spike to 14 trillion rupees against budgeted estimate of 8 trillion rupees.

The government has not officially revised the fiscal deficit target so far for the whole fiscal year.

Asia’s third-largest economy is forecast to shrink up to 10% in the current fiscal year, according to estimates by several private economists, its weakest performance since 1979.

In May, the government increased its borrowing target to 12 trillion rupees from an earlier budgeted 7.8 trillion rupees through bonds for the 2020/21 fiscal year.

The number of COVID-19 cases crossed 6.2 million on Wednesday, second only to the United States, while the death toll rose to 97,497.

Over five months, total expenditure rose 5.9% year-on-year to 12.5 trillion rupees as the government increased spending on grain and rural jobs programmes for millions of migrant workers.

($1 = 73.742 rupees)

Reporting by Manoj Kumar; Editing by Nick Macfie