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The global pandemic of Covid-19, which originated in Wuhan city of China, has put the world economy in a state of economic and health crisis. Likewise other nations, the Government of India (GOI) has also taken several measures to curb the spread of the Covid-19 disease in the nation, such as the imposition of social distancing, self-isolation at home, restrictions on movement and almost complete lockdown of the economy1 2. The central government imposed a nation-wide lockdown on March 25, 2020, in which, except for ‘essential’ activities, all economic activities such as manufacturing of non-essential goods and construction, have been suspended. These actions may help in limiting the health crisis but these have created a fear of a deep and prolonged global recession3 as these have stopped the normal functioning of the economies. This paper discusses the fiscal deficit in India during the Covid-19 pandemic. The outbreak of the Covid-19 pandemic has affected India's fiscal deficit situation in two ways. First, the governments have to allocate a significant amount of their budgets on health-care expenditure as well as social security and other payments to mitigate the economic impact of the pandemic. Second, the Covid-19 induced lock-down and containment measures have suspended almost all economic activities, which further led to a fall in both GDP and tax revenue. Thus, the Covid-19 pandemic has led to expansionary fiscal policy measures in the nation, which has further resulted in a higher level of fiscal deficit. To minimize the fiscal deficit, the government has to reduce existing subsidies and other non-essential expenditures. But the government has to increase health care expenditures and direct benefit transfers for saving the lives and livelihoods of vulnerable section of the population. In this paper, Section 2 attempts to analyse the fiscal situation of India during the financial year 2020-21. Section 3 presents suggestions to minimize the fiscal deficit in India and finally Section 4 presents concluding remarks.

Kristalina Georgeiva, the chief of the International Monetary Fund (IMF), stated on April 9, 2020 that 170 member countries will face negative per capita income growth in 2020 and that the year might see the worst global economic impact since the Great Depression of the 1930's 4. According to Arumugam and Kanagavalli (2020), the impact Covid-19 pandemic on Indian economy will be significantly more severe and long-lasting for two reasons. First, the economy was already in a slump situation because of unemployment, poor wages, rural suffering, starvation, and wide-spread inequality. Second, India's massive informal economy is particularly vulnerable. The agrarian, migrant, and other informal workers would be the hardest hit during the lockdown period because they do not receive any regular salary or income5. This scenario has led to expansionary fiscal policy measures in order to provide temporary relief to the pandemic affected population.

The paper will use analytical technique and ratio analysis to meet its objectives. It is based on secondary data taken from the published sources. The data related to fiscal stimulus packages is collected from Press Information Bureau, GOI. To analyse the fiscal deficit situation in India, various fiscal variables have come into use, such as- gross tax revenue (both direct and indirect tax), non-tax revenue, capital receipts, total expenditure (both revenue and capital expenditure), different deficit indicators (fiscal deficit and revenue deficit), market borrowings, external loans, interest payments etc. The data of different fiscal variables is taken from Handbook of Statistics on Indian Economy. The main variable of the study- fiscal deficit can be defined as the difference between total expenditure (both revenue and capital expenditure) including loans and advances, net of repayments and revenue receipts (including external grants) plus non-debt capital receipts. This reflects the total borrowings of the government from all sources.

Fiscal Situation of India during FY-2020-21
India adopted the Fiscal Responsibility and Budget Management (FRBM) Act in 2003 in order to promote fiscal prudence and transparency and bring down the fiscal deficit under pre-defined limits6. Although significant progress has been made in this area but the deficit level is still very high and unsustainable in India due to lack of proper management in expenditure side. Under the latest amendment in FRBM Act 2003, the central government was aimed to achieve a 3.0 percent fiscal deficit target latest by the financial year 2020-21. India has already a higher level of fiscal deficit in the pre-Covid-19 period and it could not achieved the target as specified in the FRBM Act. The fiscal deficit of the central government in 2019-20 stood at 4.59% of GDP against the budgeted target of 3.3% of GDP which has been the highest fiscal deficit since 2012-13. The escape clause provided under the FRBM Act, allows the government to relax the fiscal deficit target for up to 50 basis points or 0.5%. Using this escape clause, the Finance Minister pegged the fiscal deficit target at 3.5% of GDP for the financial year 2020-21. Since the central government has passed its budget for the financial year 2020-21, during February-March 2020 prior to the lockdown, the revised estimates (RE) of fiscal deficit stood at higher level than the budget estimates (BE). The RE of fiscal deficit stood at 9.36% of GDP against a budgeted target of 3.5% of GDP. The revenue deficit stood at about 70% of the fiscal deficit in the financial year 2019-20 which further increased to 79% in 2020-21 (RE) and 76% in 2021-22 (BE).
Status of Public Expenditure
Since India is a welfare state. Therefore, to overcome the economic and health crisis arising out of Covid-19 pandemic, the GOI has to announce a series of fiscal stimulus packages, which cumulatively amounted to Rs. 17, 16,441 crore. Due to comprehensive fiscal stimulus package of almost Rs.17.2 lakh crore, total expenditure, consists of revenue and capital expenditure, stood at 13.20% of GDP in 2019-20 and reached a high of 17.47% of GDP in 2020-21 (RE).The expansion in total expenditure as a percentage of GDP came mostly from a sharp increase in revenue expenditure which does not create any assets. It is generally intended to meet certain routine requirements like interest payments, defense expenditure, administrative expenditure, subsidies and the like. Revenue expenditure has increased from 11.55% of GDP in 2019-20 to 15.25% of GDP in 2020-21 (RE). During the period, the percentage of subsidies in GDP has increased from 1.29% to 3.29%, mainly because of direct benefit transfer schemes and healthcare expenditures. Some part of major subsidies like- food, fertilizers and petroleum, can be diverted towards direct benefit transfer schemes and healthcare expenditures which is essential for the lives and livelihoods of vulnerable sections of the population in present circumstances. Gulati and Banerjee (2016) give arguments about the unexpected long term effects of fertilizer subsidies. According to them, the use of fertilizers does not increase production enough to meet the increased consumption demand. In addition, it has also resulted in the unbalanced use of nutrients in agriculture which has further resulted in a long term lower level of production8. Therefore, fertilizer subsidies should be rationalized to improve the agriculture input market in India. The Economic Survey 2019-20 indicates that a major part of the food subsidy is used for funding the Food Corporation of India (FCI) which has distorted the market system of the agricultural output market9. This expenditure also leads to additional public borrowings which further leads to an extra burden of public debt and fiscal deficit as well as crowding out of private investment. The JAM (Jan Dhan-Aadhar-Mobile) system can be used to facilitate direct transfers to the needy person. Increasing health care expenditure is also essential at this juncture. The health care expenditure in India is still below 1% of GDP, although it has increased from 0.2% of GDP in 2020-21 (RE) to 0.4 % of GDP in 2021-22 (BE).The share of Interest payments has also increased from 3.01% of GDP to 3.51% of GDP in 2020-21 (RE). The sharp decline in domestic savings forced the nation to take more external loans. During the period, market borrowings grew by 122% while external loans grew by 527% which is four times the previous one. The interest payment can be substantially reduced by replacing higher cost external loans with lower cost internal market borrowings. Due to the sharp increase in revenue expenditure, the revenue deficit has also become doubled i.e. increased from 3.28% of GDP in 2019-20 to a high of 7.37% of GDP in 2020-21.

Table-1: Fiscal Package Announced by the Central Government (in Rs. Crore)

S. No.	Name of Scheme	Amount
1.	Pradhan Mantri Garib Kalyan Package	1,70,000
2.	PM's Health Package	15,000
3.	Tax Revenue Loss due to Tax Concession Measures	7,800
4.	Atma Nirbhar Bharat Abhiyan 1.0	11,02,650
5.	PMGKP Anna Yojana Extension	82,911
6.	Atma Nirbhar Bharat Abhiyan 2.0	73,000
7.	Atma Nirbhar Bharat Abhiyan 3.0	2,65,080
	Total	17,16,441

Source: Press Information Bureau, GoI

During the period, capital expenditure which includes the creation or acquisition of assets and loans and advances given to states, has also increased from 1.65% of GDP to 2.22% of GDP, mainly due to a sharp increase in loans and advances. In this period, the percentage of loans and advances in GDP has increased almost five times, from 0.12% of GDP to 0.53% of GDP. No doubt, states are also in a state of economic and health crisis and require more funds in the form of loans and advances from the center. In order to reduce this expenditure, states should be made efficient enough to take long term loans directly by negotiating with multilateral institutions. For example, most recently in June 2020, under the STARS (Teaching Learning and Results for States) programme, the World Bank has approved a loan of Rs. 3700 crore for six states (Himachal Pradesh, Kerala, Madhya Pradesh, Maharashtra, Orissa and Rajasthan) of India. Capital outlay has increased from 1.53% of GDP to 1.68% of GDP which is a very positive sign for achieving higher economic growth as this money has been spent on developing social and physical infrastructure. It needs to be noted here that the growth rate of capital expenditure has exceeded revenue expenditure during the financial year 2020-21. The growth rates of capital expenditure and revenue expenditure stood at 30.8% and 28.1% respectively during the period. The reason is that the central government has focused on an increase in capital expenditure under the different versions of the Atma Nirbhar Bharat Abhiyan.
Status of Public Revenue
Total receipts of the central government comprise revenue receipts and capital receipts. Revenue receipts can be defined as those receipts which neither reduce any assets nor create any liabilities for the government. Tax-revenue (both direct and indirect) and non-tax revenue include collection from government-offered goods or services, are the components of revenue receipts. In contrast, capital receipts are the receipts that arise from the liquidation of an asset including, the return of funds given on loan or the receipt of a loan and the sale of government shares in public enterprises.
Due to pandemic-induced income uncertainties, gross tax revenue has declined from 9.88% of GDP in 2019-20 to 9.62% of GDP in 2020-21 (RE). The actual amount of personal income tax and corporation tax, the two major components of direct tax, has shown a declining trend during the period. The actual amount of personal income tax has decreased from Rs. 2,98,204 crore in 2019-20 to Rs. 2,98,192 in 2020-21. Similarly, the actual amount of corporation tax has also decreased from Rs. 3, 40,143 crore to Rs. 2, 88,155 crore during this period. The composition of tax revenue has also been changed. Before the pandemic, direct taxes had a larger share of tax revenue than indirect taxes but the pandemic induced lockdown has changed the scenario. Non-tax revenue has also decreased by 0.54% of GDP during the period.
Table-2: Major Fiscal Variables of the Central Government (as % of GDP)

Fiscal Variables	Year
	2019-20	2020-21 (RE)	2021-22 (BE)
Gross Tax Revenue	9.88	9.62	9.95
(a) Direct Tax	5.16	4.58	4.97
(b) Indirect Tax	4.72	5.04	4.98
Net Tax Revenue	6.67	6.81	6.93
Non-tax Revenue	1.61	1.07	1.09
Capital Receipts	4.9	9.69	7.28
Total Expenditure	13.2	17.47	15.63
Revenue Expenditure	11.55	15.25	13.14
Capital Expenditure	1.65	2.22	2.49
Revenue Deficit	3.28	7.37	5.12
Fiscal Deficit	4.59	9.36	6.76

Source: Handbook of Statistics on Indian Economy (2021)
In contrast, the share of capital receipts has become almost doubled during the period, primarily on account ofan increase in net market borrowings and external loans. Capital receipt has increased from 4.9% of GDP to 9.69% of GDP in 2020-21 (RE). The actual amount of the central government’s market borrowings increased from Rs. 4,73,968 crore in 2019-20 to Rs. 10,52,788 crore in 2020-21 (RE) which is almost doubled. The actual amount of external loans has also increased from Rs. 8,682 crore to Rs. 54,522 crore in 2020-21 (RE) which is a seven fold increase. The actual amount ofdisinvestment receipts has decreased from Rs. 50,304 crore to Rs. 32,000 crore in 2020-21 (RE). Revenue receipts declined at a rate of 7.6% while capital receipts grew at a rate of 91.8% during the period.
Figure 1

During the pandemic, very little change in tax revenue and large change in public expenditure have been seen (refer table 2 and figure 1). The pandemic induced lower tax revenue and higher public expenditure which pushed the fiscal deficit to a higher level. As a result, achieving the target of fiscal consolidation has become even more difficult. In the present pandemic circumstances, any effort of fiscal consolidation, either a fall in capital expenditure or a rise in tax revenue, can negatively affect the path of economic recovery
The IMF raised its growth forecast for the Indian economy in fiscal year 2021-22 from 11.5 percent to 12.5 percent in its latest World Economic Outlook Report, following an expected contraction of -8 percent in financial year 2020-21. The Union Budget 2021-22 has also laid the groundwork for a robust comeback. This is hoped to be accomplished via boosting tax revenue buoyancy through better compliance and increased collections from asset monetisation. Additional taxation is not required to improve tax buoyancy. The new public sector enterprise policy, which intends to reduce the presence of central public sector enterprises (CPSEs) and create more space for the private sector, has also reinvigorated the push for disinvestment and asset monetisation in the budget. The government has stated that it intends to establish a proper channel to monetize 100 government-owned assets over a period of time, potentially generating an investment opportunities of around Rs 2.5 lakh crore. It has a solid disinvestment strategy as well. Four main strategic areas have been selected where CPSEs will have a minimal presence. These areas are- power, petroleum, coal, and minerals; atomic energy, space, and defence; transportation and telecommunications and financial services. All other CPSEs will be privatised or closed in all other non-strategic sectors. Capital expenditure, which is budgeted at 2.5% of GDP for the financial year 2021-22, will continue to provide counter-cyclical fiscal assistance to the economy¹¹.The fiscal deficit increased from 4.59% of GDP in 2019-20 to 9.34% of GDP in 2020-21 (RE), with a target of 6.76% of GDP in financial year 2021-22. This expected decline inthe fiscal deficit is not on account of lower public expenditure but rather of expectations of sharper revenue growth. The higher level of gross fiscal deficit in the financial year 2020-21 and 2021-22 has forced a significant increase in the central government's market borrowings, which are still the key source of deficit financing.

There are mainly four ways to finance the pandemic induced fiscal imbalance problem. First, increase tax revenue through additional taxation; second, borrow money from both internal and external sources; third, issue new currency and fourth, reduce and rationalize the public expenditure. The first option is not a suitable option in the present situation because raising tax revenue with additional taxation will reduce private consumption and investment demand, which further leads to a reduction in economic activities and growth process and a reduction in economic activities further results in lower tax revenues. Thus, the first option is associated with a negative fiscal multiplier[12] multiplier¹²and it is harmful for sustainable economic recovery.The second alternative is also not practical because financing a deficit through bank, foreign, or public borrowing almost always results in inflationary pressure.If follow the third option, the deficit is financed through money creation, the quantity of money will increase in the economy. An increase in money quantity will lead to an increase in people’s money income which further results in higher money demand to facilitate their transactions. With higher money demand and given money supply determined exogenously by monetary authorities, price level will be determined at a higher level[13, 14]. Therefore, the third alternative is also not an appropriate measure. Since the first three alternatives are not much better options in the present situation, we think there is a good reason to consider the fourth carefully. The government can exploit this crisis to rationalise and postpone non-essential expenditures and improve the efficiency of CPSE’s and so on. This will aid in reducing the economic impact of COVID-19 as well as avoiding future debt overhang.However, this may not be sufficient to offset all the expenses, and the government may have to borrow more money from the market than budgeted earlier.

Some important suggestions need to be noted here, such as-

1.     Some part of food, fertilizer and petroleum subsidies should be diverted towards direct benefit transfers and health care expenditure.

2.     In order to reduce interest payments as much as possible, higher cost external loans should be replaced with internal market borrowings.

3.     States should be made so efficientthat the states can take long term loans directly by negotiating with multilateral institutions.

4.     Inefficient CPSE’s should be closed or privatised so that the government can generate revenue in the form of disinvestment and asset monetization.

5.     Investment in the health care sector and social security sector should be increased in the present pandemic situation.

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