Fiscal Developments | Economic Survey & Government Reports - UPSC PDF Download

 Page 1


CHAPTER
02
"Precision Beats Power, and Timing Beats Speed"
— By Conor McGregor
In the backdrop of an unprecedented crisis, the year 2020-21 has been a challenging 
one on the fiscal front. The shortfall in revenue collection owing to the interruption in 
economic activity and the additional expenditure requirements to mitigate the fallout 
of the pandemic on vulnerable people, small businesses, and the economy in general, 
created immense pressure on the available limited fiscal resources. In order to cater to 
the increased demand for resources, the target for gross market borrowings of the Central 
Government for the financial year 2020-21 was revised from the Budget estimate of 
` 7.8 lakh crore to ` 12 lakh crore.
India, therefore, adopted a calibrated approach best suited for the evolving situation of the 
economy in contrast to front-loaded large stimulus packages adopted by many countries.  
India's fiscal policy reflected the understanding that aggregate demand, especially that for 
non-essential items, reflects precautionary motives to save, which inevitably remains high 
when overall uncertainty is high. Therefore, during the initial months of the pandemic 
when uncertainty was high and lockdown imposed economic restrictions, India did not 
waste precious fiscal resources in trying to pump up discretionary consumption. Instead, 
the policy focused on ensuring that all essentials were taken care of, which included direct 
benefit transfers to the vulnerable sections, emergency credit to the small businesses, 
and the world’ s largest food subsidy programme targeting 80.96 crore beneficiaries. 
During the unlock phase, when uncertainty declined and the precautionary motive to save 
subsided, on the one hand, and economic mobility increased, on the other hand, India 
ramped up its fiscal spending focusing on overall demand revival. India’ s demand-side 
policy, thus, underscores the idea that pressing on the accelerator while the brakes are 
clamped only wastes scarce fuel. 
Owing to the recovery of the economy over the past few months, the monthly revenue 
collections have witnessed a revival. The monthly GST collections have crossed the 
` 1 lakh crore mark consecutively for the last 3 months, reaching its’ highest ever in 
December 2020. Reforms in tax administration have set in motion a process of transparency, 
accountability and more importantly, enhancing the experience of an honest tax payer 
with the tax authority, thus incentivising tax compliance. The expenditure policy for 2020-
21 has been focused on re-prioritisation of expenditure according to evolving situation, 
with an increasing emphasis on capital expenditure. Capital expenditure during the last 
three months of the year 2020 recorded an unprecedented YoY growth of 129 per cent in 
October, 249 per cent in November and 62 per cent in December. Keeping in view the 
revenue shortfall and the demand for higher expenditure during the year, the Government 
Fiscal Developments
Page 2


CHAPTER
02
"Precision Beats Power, and Timing Beats Speed"
— By Conor McGregor
In the backdrop of an unprecedented crisis, the year 2020-21 has been a challenging 
one on the fiscal front. The shortfall in revenue collection owing to the interruption in 
economic activity and the additional expenditure requirements to mitigate the fallout 
of the pandemic on vulnerable people, small businesses, and the economy in general, 
created immense pressure on the available limited fiscal resources. In order to cater to 
the increased demand for resources, the target for gross market borrowings of the Central 
Government for the financial year 2020-21 was revised from the Budget estimate of 
` 7.8 lakh crore to ` 12 lakh crore.
India, therefore, adopted a calibrated approach best suited for the evolving situation of the 
economy in contrast to front-loaded large stimulus packages adopted by many countries.  
India's fiscal policy reflected the understanding that aggregate demand, especially that for 
non-essential items, reflects precautionary motives to save, which inevitably remains high 
when overall uncertainty is high. Therefore, during the initial months of the pandemic 
when uncertainty was high and lockdown imposed economic restrictions, India did not 
waste precious fiscal resources in trying to pump up discretionary consumption. Instead, 
the policy focused on ensuring that all essentials were taken care of, which included direct 
benefit transfers to the vulnerable sections, emergency credit to the small businesses, 
and the world’ s largest food subsidy programme targeting 80.96 crore beneficiaries. 
During the unlock phase, when uncertainty declined and the precautionary motive to save 
subsided, on the one hand, and economic mobility increased, on the other hand, India 
ramped up its fiscal spending focusing on overall demand revival. India’ s demand-side 
policy, thus, underscores the idea that pressing on the accelerator while the brakes are 
clamped only wastes scarce fuel. 
Owing to the recovery of the economy over the past few months, the monthly revenue 
collections have witnessed a revival. The monthly GST collections have crossed the 
` 1 lakh crore mark consecutively for the last 3 months, reaching its’ highest ever in 
December 2020. Reforms in tax administration have set in motion a process of transparency, 
accountability and more importantly, enhancing the experience of an honest tax payer 
with the tax authority, thus incentivising tax compliance. The expenditure policy for 2020-
21 has been focused on re-prioritisation of expenditure according to evolving situation, 
with an increasing emphasis on capital expenditure. Capital expenditure during the last 
three months of the year 2020 recorded an unprecedented YoY growth of 129 per cent in 
October, 249 per cent in November and 62 per cent in December. Keeping in view the 
revenue shortfall and the demand for higher expenditure during the year, the Government 
Fiscal Developments
52 Economic Survey 2020-21   V olume 2
INTRODUCTION
2.1 The global economy experienced an unprecedented crisis in the year 2020. The COVID-19 
pandemic forced countries to resort to lockdown that had a sudden and intense impact on the 
economic activity, financial markets and survival of the vulnerable sections of the society. 
Amidst this phase of shock and uncertainty massive fiscal measures, amounting to 12 percent of 
global GDP
1
, were taken globally to mitigate the adverse impact of the pandemic. Fiscal policy, 
in combination with monetary policy measures, emerged as an effective policy tool in times of crisis.
2.2 The fiscal policy response of the Government of India to the pandemic was distinct from 
other countries. Unlike many other countries that chose a front-loaded grand stimulus package 
for revival of the economy, Government of India adopted a step-by-step approach. The approach 
was to provide a cushion for the poor and vulnerable section of society and to the business sector 
(especially the MSMEs) in the initial phase of lockdown. This included the world’s largest food 
programme, direct transfers to Jan Dhan accounts, as well as government guarantees for credit, 
postponement of financial deadlines etc. With the gradual un-locking of the economy, the focus 
of the fiscal stimulus has been widened with various measures taken to boost the domestic 
demand such as ramping up of capital expenditure, Production Linked Incentives and other 
schemes to revive consumption demand.
2.3. This chapter reviews the fiscal developments in India both before and after the outbreak of 
pandemic. It begins with a discussion of fiscal performance and policy response to the pandemic 
in the current financial year, followed by the section on the major reforms introduced in tax 
administration in 2020-21. The chapter then gives a detailed analysis of the medium to long 
term trends in Central, State and General Government finances, and concludes with a snapshot 
of the outlook for 2021-22.
FISCAL SITUATION AND RESPONSE TO COVID-19 PANDEMIC 
2.4 The pandemic year 2020-21 has so far entailed fiscal challenges for the Indian economy, 
which were characterized by additional expenditure requirements directed towards ensuring 
basic means of sustenance and livelihoods for the vulnerable people, relief measures for MSME 
sector, accommodating additional health infrastructure and services to fight COVID-19 and 
measures to boost the demand. Throughout this period, the Government followed a carefully 
calibrated strategy in the management of expenditure. 
2.5 During the first two quarters of financial year 2020-21, Ministries were classified into 
three categories. Ministries in category ‘A’ were providing relief or welfare to the public. No 
expenditure restrictions were placed on these Ministries and in fact enhanced allocations were 
made available to them. Other Ministries which were not directly involved in the pandemic 
were placed in the category ‘B’ and allowed to spend 20% of their budget per quarter. Ministries 
with low priority in the pandemic situation were placed in category ‘C’ and allowed to spend 
1
as on September 11, 2020 (October 2020 IMF Fiscal outlook)
is expected to register a fiscal slippage in 2020-21. This deviation from the path of fiscal 
consolidation may however be transient as the fiscal indicators rebound with the recovery 
in the economy. Thus, focusing on boosting GDP growth would be pivotal for enabling a 
sustainable fiscal path in the medium term.
Page 3


CHAPTER
02
"Precision Beats Power, and Timing Beats Speed"
— By Conor McGregor
In the backdrop of an unprecedented crisis, the year 2020-21 has been a challenging 
one on the fiscal front. The shortfall in revenue collection owing to the interruption in 
economic activity and the additional expenditure requirements to mitigate the fallout 
of the pandemic on vulnerable people, small businesses, and the economy in general, 
created immense pressure on the available limited fiscal resources. In order to cater to 
the increased demand for resources, the target for gross market borrowings of the Central 
Government for the financial year 2020-21 was revised from the Budget estimate of 
` 7.8 lakh crore to ` 12 lakh crore.
India, therefore, adopted a calibrated approach best suited for the evolving situation of the 
economy in contrast to front-loaded large stimulus packages adopted by many countries.  
India's fiscal policy reflected the understanding that aggregate demand, especially that for 
non-essential items, reflects precautionary motives to save, which inevitably remains high 
when overall uncertainty is high. Therefore, during the initial months of the pandemic 
when uncertainty was high and lockdown imposed economic restrictions, India did not 
waste precious fiscal resources in trying to pump up discretionary consumption. Instead, 
the policy focused on ensuring that all essentials were taken care of, which included direct 
benefit transfers to the vulnerable sections, emergency credit to the small businesses, 
and the world’ s largest food subsidy programme targeting 80.96 crore beneficiaries. 
During the unlock phase, when uncertainty declined and the precautionary motive to save 
subsided, on the one hand, and economic mobility increased, on the other hand, India 
ramped up its fiscal spending focusing on overall demand revival. India’ s demand-side 
policy, thus, underscores the idea that pressing on the accelerator while the brakes are 
clamped only wastes scarce fuel. 
Owing to the recovery of the economy over the past few months, the monthly revenue 
collections have witnessed a revival. The monthly GST collections have crossed the 
` 1 lakh crore mark consecutively for the last 3 months, reaching its’ highest ever in 
December 2020. Reforms in tax administration have set in motion a process of transparency, 
accountability and more importantly, enhancing the experience of an honest tax payer 
with the tax authority, thus incentivising tax compliance. The expenditure policy for 2020-
21 has been focused on re-prioritisation of expenditure according to evolving situation, 
with an increasing emphasis on capital expenditure. Capital expenditure during the last 
three months of the year 2020 recorded an unprecedented YoY growth of 129 per cent in 
October, 249 per cent in November and 62 per cent in December. Keeping in view the 
revenue shortfall and the demand for higher expenditure during the year, the Government 
Fiscal Developments
52 Economic Survey 2020-21   V olume 2
INTRODUCTION
2.1 The global economy experienced an unprecedented crisis in the year 2020. The COVID-19 
pandemic forced countries to resort to lockdown that had a sudden and intense impact on the 
economic activity, financial markets and survival of the vulnerable sections of the society. 
Amidst this phase of shock and uncertainty massive fiscal measures, amounting to 12 percent of 
global GDP
1
, were taken globally to mitigate the adverse impact of the pandemic. Fiscal policy, 
in combination with monetary policy measures, emerged as an effective policy tool in times of crisis.
2.2 The fiscal policy response of the Government of India to the pandemic was distinct from 
other countries. Unlike many other countries that chose a front-loaded grand stimulus package 
for revival of the economy, Government of India adopted a step-by-step approach. The approach 
was to provide a cushion for the poor and vulnerable section of society and to the business sector 
(especially the MSMEs) in the initial phase of lockdown. This included the world’s largest food 
programme, direct transfers to Jan Dhan accounts, as well as government guarantees for credit, 
postponement of financial deadlines etc. With the gradual un-locking of the economy, the focus 
of the fiscal stimulus has been widened with various measures taken to boost the domestic 
demand such as ramping up of capital expenditure, Production Linked Incentives and other 
schemes to revive consumption demand.
2.3. This chapter reviews the fiscal developments in India both before and after the outbreak of 
pandemic. It begins with a discussion of fiscal performance and policy response to the pandemic 
in the current financial year, followed by the section on the major reforms introduced in tax 
administration in 2020-21. The chapter then gives a detailed analysis of the medium to long 
term trends in Central, State and General Government finances, and concludes with a snapshot 
of the outlook for 2021-22.
FISCAL SITUATION AND RESPONSE TO COVID-19 PANDEMIC 
2.4 The pandemic year 2020-21 has so far entailed fiscal challenges for the Indian economy, 
which were characterized by additional expenditure requirements directed towards ensuring 
basic means of sustenance and livelihoods for the vulnerable people, relief measures for MSME 
sector, accommodating additional health infrastructure and services to fight COVID-19 and 
measures to boost the demand. Throughout this period, the Government followed a carefully 
calibrated strategy in the management of expenditure. 
2.5 During the first two quarters of financial year 2020-21, Ministries were classified into 
three categories. Ministries in category ‘A’ were providing relief or welfare to the public. No 
expenditure restrictions were placed on these Ministries and in fact enhanced allocations were 
made available to them. Other Ministries which were not directly involved in the pandemic 
were placed in the category ‘B’ and allowed to spend 20% of their budget per quarter. Ministries 
with low priority in the pandemic situation were placed in category ‘C’ and allowed to spend 
1
as on September 11, 2020 (October 2020 IMF Fiscal outlook)
is expected to register a fiscal slippage in 2020-21. This deviation from the path of fiscal 
consolidation may however be transient as the fiscal indicators rebound with the recovery 
in the economy. Thus, focusing on boosting GDP growth would be pivotal for enabling a 
sustainable fiscal path in the medium term.
53 Fiscal Developments
15% of their budget in each of the first two quarters. However, even in Category B and C 
Ministries, spending on domestic capital expenditure was permitted beyond these ceilings. This 
categorization enabled the Government to ensure that funds for essential activities were made 
available in full despite a sharp contraction in revenue receipts, and that scarce resources were 
conserved for re-prioritisation.
2.6 With effect from the third quarter, the spending ceilings were relaxed on the basis of 
revised full year allocations. The revised allocations reflected a substantial re-prioritisation of 
expenditure to those sectors with the most positive effect on the economy, either in terms of 
re-kindling growth or meeting welfare needs. Ministries were allowed to decide the timing of 
expenditure within the revised allocation. Despite the absence of curbs on capital expenditure, 
the pace of capital expenditure was restrained in the first two quarters on account of movement 
restrictions in containment zones, and unwillingness or inability of contractors and workers to 
carry out works.
2.7 With the easing of movement and health-related restrictions in the third quarter, the pace of 
government expenditure has picked up sharply. Second to pandemic relief, the Government has 
placed maximum priority on productive domestic capital expenditure which has a high multiplier 
effect on the economy. The capital expenditure for April to December 2020 (Flash)
2
 stood at 
` 3.17 lakh crore, 24 per cent higher than the capital expenditure during the corresponding 
period in the previous year. The total expenditure also recorded a YoY growth of 11 per cent, 
increasing from ` 21.1 lakh crore during April to December 2019 to ` 23.4 lakh crore during 
April to December 2020 (Flash). An analysis of the monthly expenditure also shows that the 
total expenditure registered an increase during the last three months of the year 2020 by 9.5 
per in October, 48.3 per cent in November and 50.2 per cent in December (Flash) compared to 
the same months in the previous year. Moreover, the capital expenditure during the last three 
months of the year 2020 recorded a phenomenal growth of 129.5 per cent in October, 248.5 
per cent in November and 81.9 per cent in December (Flash) as compared to same months in 
previous year (Figure 1). It can clearly be seen that by timing the expenditure push, especially 
the capital expenditure, after the reduction in health-related curbs, the growth “bang” for the 
fiscal buck has been maximized.
Figure 1: Growth (YoY) in monthly Expenditure during FY 2020-21  
-7%
57%
116%
-47%
-21%
-39%
129%
249%
82%
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec 20
(Flash)
Growth in Capital  Expenditure Growth in Revenue Expenditure
Source: Department of Expenditure 
2
Flash figures from Office of CGA as on 11
th
 January 2021.
Page 4


CHAPTER
02
"Precision Beats Power, and Timing Beats Speed"
— By Conor McGregor
In the backdrop of an unprecedented crisis, the year 2020-21 has been a challenging 
one on the fiscal front. The shortfall in revenue collection owing to the interruption in 
economic activity and the additional expenditure requirements to mitigate the fallout 
of the pandemic on vulnerable people, small businesses, and the economy in general, 
created immense pressure on the available limited fiscal resources. In order to cater to 
the increased demand for resources, the target for gross market borrowings of the Central 
Government for the financial year 2020-21 was revised from the Budget estimate of 
` 7.8 lakh crore to ` 12 lakh crore.
India, therefore, adopted a calibrated approach best suited for the evolving situation of the 
economy in contrast to front-loaded large stimulus packages adopted by many countries.  
India's fiscal policy reflected the understanding that aggregate demand, especially that for 
non-essential items, reflects precautionary motives to save, which inevitably remains high 
when overall uncertainty is high. Therefore, during the initial months of the pandemic 
when uncertainty was high and lockdown imposed economic restrictions, India did not 
waste precious fiscal resources in trying to pump up discretionary consumption. Instead, 
the policy focused on ensuring that all essentials were taken care of, which included direct 
benefit transfers to the vulnerable sections, emergency credit to the small businesses, 
and the world’ s largest food subsidy programme targeting 80.96 crore beneficiaries. 
During the unlock phase, when uncertainty declined and the precautionary motive to save 
subsided, on the one hand, and economic mobility increased, on the other hand, India 
ramped up its fiscal spending focusing on overall demand revival. India’ s demand-side 
policy, thus, underscores the idea that pressing on the accelerator while the brakes are 
clamped only wastes scarce fuel. 
Owing to the recovery of the economy over the past few months, the monthly revenue 
collections have witnessed a revival. The monthly GST collections have crossed the 
` 1 lakh crore mark consecutively for the last 3 months, reaching its’ highest ever in 
December 2020. Reforms in tax administration have set in motion a process of transparency, 
accountability and more importantly, enhancing the experience of an honest tax payer 
with the tax authority, thus incentivising tax compliance. The expenditure policy for 2020-
21 has been focused on re-prioritisation of expenditure according to evolving situation, 
with an increasing emphasis on capital expenditure. Capital expenditure during the last 
three months of the year 2020 recorded an unprecedented YoY growth of 129 per cent in 
October, 249 per cent in November and 62 per cent in December. Keeping in view the 
revenue shortfall and the demand for higher expenditure during the year, the Government 
Fiscal Developments
52 Economic Survey 2020-21   V olume 2
INTRODUCTION
2.1 The global economy experienced an unprecedented crisis in the year 2020. The COVID-19 
pandemic forced countries to resort to lockdown that had a sudden and intense impact on the 
economic activity, financial markets and survival of the vulnerable sections of the society. 
Amidst this phase of shock and uncertainty massive fiscal measures, amounting to 12 percent of 
global GDP
1
, were taken globally to mitigate the adverse impact of the pandemic. Fiscal policy, 
in combination with monetary policy measures, emerged as an effective policy tool in times of crisis.
2.2 The fiscal policy response of the Government of India to the pandemic was distinct from 
other countries. Unlike many other countries that chose a front-loaded grand stimulus package 
for revival of the economy, Government of India adopted a step-by-step approach. The approach 
was to provide a cushion for the poor and vulnerable section of society and to the business sector 
(especially the MSMEs) in the initial phase of lockdown. This included the world’s largest food 
programme, direct transfers to Jan Dhan accounts, as well as government guarantees for credit, 
postponement of financial deadlines etc. With the gradual un-locking of the economy, the focus 
of the fiscal stimulus has been widened with various measures taken to boost the domestic 
demand such as ramping up of capital expenditure, Production Linked Incentives and other 
schemes to revive consumption demand.
2.3. This chapter reviews the fiscal developments in India both before and after the outbreak of 
pandemic. It begins with a discussion of fiscal performance and policy response to the pandemic 
in the current financial year, followed by the section on the major reforms introduced in tax 
administration in 2020-21. The chapter then gives a detailed analysis of the medium to long 
term trends in Central, State and General Government finances, and concludes with a snapshot 
of the outlook for 2021-22.
FISCAL SITUATION AND RESPONSE TO COVID-19 PANDEMIC 
2.4 The pandemic year 2020-21 has so far entailed fiscal challenges for the Indian economy, 
which were characterized by additional expenditure requirements directed towards ensuring 
basic means of sustenance and livelihoods for the vulnerable people, relief measures for MSME 
sector, accommodating additional health infrastructure and services to fight COVID-19 and 
measures to boost the demand. Throughout this period, the Government followed a carefully 
calibrated strategy in the management of expenditure. 
2.5 During the first two quarters of financial year 2020-21, Ministries were classified into 
three categories. Ministries in category ‘A’ were providing relief or welfare to the public. No 
expenditure restrictions were placed on these Ministries and in fact enhanced allocations were 
made available to them. Other Ministries which were not directly involved in the pandemic 
were placed in the category ‘B’ and allowed to spend 20% of their budget per quarter. Ministries 
with low priority in the pandemic situation were placed in category ‘C’ and allowed to spend 
1
as on September 11, 2020 (October 2020 IMF Fiscal outlook)
is expected to register a fiscal slippage in 2020-21. This deviation from the path of fiscal 
consolidation may however be transient as the fiscal indicators rebound with the recovery 
in the economy. Thus, focusing on boosting GDP growth would be pivotal for enabling a 
sustainable fiscal path in the medium term.
53 Fiscal Developments
15% of their budget in each of the first two quarters. However, even in Category B and C 
Ministries, spending on domestic capital expenditure was permitted beyond these ceilings. This 
categorization enabled the Government to ensure that funds for essential activities were made 
available in full despite a sharp contraction in revenue receipts, and that scarce resources were 
conserved for re-prioritisation.
2.6 With effect from the third quarter, the spending ceilings were relaxed on the basis of 
revised full year allocations. The revised allocations reflected a substantial re-prioritisation of 
expenditure to those sectors with the most positive effect on the economy, either in terms of 
re-kindling growth or meeting welfare needs. Ministries were allowed to decide the timing of 
expenditure within the revised allocation. Despite the absence of curbs on capital expenditure, 
the pace of capital expenditure was restrained in the first two quarters on account of movement 
restrictions in containment zones, and unwillingness or inability of contractors and workers to 
carry out works.
2.7 With the easing of movement and health-related restrictions in the third quarter, the pace of 
government expenditure has picked up sharply. Second to pandemic relief, the Government has 
placed maximum priority on productive domestic capital expenditure which has a high multiplier 
effect on the economy. The capital expenditure for April to December 2020 (Flash)
2
 stood at 
` 3.17 lakh crore, 24 per cent higher than the capital expenditure during the corresponding 
period in the previous year. The total expenditure also recorded a YoY growth of 11 per cent, 
increasing from ` 21.1 lakh crore during April to December 2019 to ` 23.4 lakh crore during 
April to December 2020 (Flash). An analysis of the monthly expenditure also shows that the 
total expenditure registered an increase during the last three months of the year 2020 by 9.5 
per in October, 48.3 per cent in November and 50.2 per cent in December (Flash) compared to 
the same months in the previous year. Moreover, the capital expenditure during the last three 
months of the year 2020 recorded a phenomenal growth of 129.5 per cent in October, 248.5 
per cent in November and 81.9 per cent in December (Flash) as compared to same months in 
previous year (Figure 1). It can clearly be seen that by timing the expenditure push, especially 
the capital expenditure, after the reduction in health-related curbs, the growth “bang” for the 
fiscal buck has been maximized.
Figure 1: Growth (YoY) in monthly Expenditure during FY 2020-21  
-7%
57%
116%
-47%
-21%
-39%
129%
249%
82%
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec 20
(Flash)
Growth in Capital  Expenditure Growth in Revenue Expenditure
Source: Department of Expenditure 
2
Flash figures from Office of CGA as on 11
th
 January 2021.
54 Economic Survey 2020-21   V olume 2
2.8 Recovery is also evident on the revenue front, as the monthly gross GST collection
3
 has 
crossed the ` 1 lakh crore mark consecutively for the last 3 months (Figure 2). Monthly GST 
revenues for the month of December 2020 stood at ` 1.15 lakh crore, after registering a 12 per 
cent growth in the GST revenues over December 2019 (Figure 3). This has been the highest 
monthly GST collection since the introduction of GST. The recovery in GST collection has been 
due to the combined effect of the rapid economic recovery post pandemic and the nation-wide 
drive against GST evaders and fake bills along with many systemic changes introduced recently, 
which have led to improved compliance.
Figure 2: Recovery in GST collections during 2020-21
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Rs lakh crore
Source: Department of Revenue
Figure 3: Trends in GST collection during 2020-21
1.14
1.00
1.00
1.02
0.98
0.92
0.95
1.03
1.03
0.32
0.62
0.91
0.87
0.86
0.95
1.05
1.05 1.15
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Apr May Jun Jul Aug Sep Oct Nov Dec
In Rs Lakh crore
2019-20 2020-21
Source: Department of Revenue
3
Centre and States taken together
Page 5


CHAPTER
02
"Precision Beats Power, and Timing Beats Speed"
— By Conor McGregor
In the backdrop of an unprecedented crisis, the year 2020-21 has been a challenging 
one on the fiscal front. The shortfall in revenue collection owing to the interruption in 
economic activity and the additional expenditure requirements to mitigate the fallout 
of the pandemic on vulnerable people, small businesses, and the economy in general, 
created immense pressure on the available limited fiscal resources. In order to cater to 
the increased demand for resources, the target for gross market borrowings of the Central 
Government for the financial year 2020-21 was revised from the Budget estimate of 
` 7.8 lakh crore to ` 12 lakh crore.
India, therefore, adopted a calibrated approach best suited for the evolving situation of the 
economy in contrast to front-loaded large stimulus packages adopted by many countries.  
India's fiscal policy reflected the understanding that aggregate demand, especially that for 
non-essential items, reflects precautionary motives to save, which inevitably remains high 
when overall uncertainty is high. Therefore, during the initial months of the pandemic 
when uncertainty was high and lockdown imposed economic restrictions, India did not 
waste precious fiscal resources in trying to pump up discretionary consumption. Instead, 
the policy focused on ensuring that all essentials were taken care of, which included direct 
benefit transfers to the vulnerable sections, emergency credit to the small businesses, 
and the world’ s largest food subsidy programme targeting 80.96 crore beneficiaries. 
During the unlock phase, when uncertainty declined and the precautionary motive to save 
subsided, on the one hand, and economic mobility increased, on the other hand, India 
ramped up its fiscal spending focusing on overall demand revival. India’ s demand-side 
policy, thus, underscores the idea that pressing on the accelerator while the brakes are 
clamped only wastes scarce fuel. 
Owing to the recovery of the economy over the past few months, the monthly revenue 
collections have witnessed a revival. The monthly GST collections have crossed the 
` 1 lakh crore mark consecutively for the last 3 months, reaching its’ highest ever in 
December 2020. Reforms in tax administration have set in motion a process of transparency, 
accountability and more importantly, enhancing the experience of an honest tax payer 
with the tax authority, thus incentivising tax compliance. The expenditure policy for 2020-
21 has been focused on re-prioritisation of expenditure according to evolving situation, 
with an increasing emphasis on capital expenditure. Capital expenditure during the last 
three months of the year 2020 recorded an unprecedented YoY growth of 129 per cent in 
October, 249 per cent in November and 62 per cent in December. Keeping in view the 
revenue shortfall and the demand for higher expenditure during the year, the Government 
Fiscal Developments
52 Economic Survey 2020-21   V olume 2
INTRODUCTION
2.1 The global economy experienced an unprecedented crisis in the year 2020. The COVID-19 
pandemic forced countries to resort to lockdown that had a sudden and intense impact on the 
economic activity, financial markets and survival of the vulnerable sections of the society. 
Amidst this phase of shock and uncertainty massive fiscal measures, amounting to 12 percent of 
global GDP
1
, were taken globally to mitigate the adverse impact of the pandemic. Fiscal policy, 
in combination with monetary policy measures, emerged as an effective policy tool in times of crisis.
2.2 The fiscal policy response of the Government of India to the pandemic was distinct from 
other countries. Unlike many other countries that chose a front-loaded grand stimulus package 
for revival of the economy, Government of India adopted a step-by-step approach. The approach 
was to provide a cushion for the poor and vulnerable section of society and to the business sector 
(especially the MSMEs) in the initial phase of lockdown. This included the world’s largest food 
programme, direct transfers to Jan Dhan accounts, as well as government guarantees for credit, 
postponement of financial deadlines etc. With the gradual un-locking of the economy, the focus 
of the fiscal stimulus has been widened with various measures taken to boost the domestic 
demand such as ramping up of capital expenditure, Production Linked Incentives and other 
schemes to revive consumption demand.
2.3. This chapter reviews the fiscal developments in India both before and after the outbreak of 
pandemic. It begins with a discussion of fiscal performance and policy response to the pandemic 
in the current financial year, followed by the section on the major reforms introduced in tax 
administration in 2020-21. The chapter then gives a detailed analysis of the medium to long 
term trends in Central, State and General Government finances, and concludes with a snapshot 
of the outlook for 2021-22.
FISCAL SITUATION AND RESPONSE TO COVID-19 PANDEMIC 
2.4 The pandemic year 2020-21 has so far entailed fiscal challenges for the Indian economy, 
which were characterized by additional expenditure requirements directed towards ensuring 
basic means of sustenance and livelihoods for the vulnerable people, relief measures for MSME 
sector, accommodating additional health infrastructure and services to fight COVID-19 and 
measures to boost the demand. Throughout this period, the Government followed a carefully 
calibrated strategy in the management of expenditure. 
2.5 During the first two quarters of financial year 2020-21, Ministries were classified into 
three categories. Ministries in category ‘A’ were providing relief or welfare to the public. No 
expenditure restrictions were placed on these Ministries and in fact enhanced allocations were 
made available to them. Other Ministries which were not directly involved in the pandemic 
were placed in the category ‘B’ and allowed to spend 20% of their budget per quarter. Ministries 
with low priority in the pandemic situation were placed in category ‘C’ and allowed to spend 
1
as on September 11, 2020 (October 2020 IMF Fiscal outlook)
is expected to register a fiscal slippage in 2020-21. This deviation from the path of fiscal 
consolidation may however be transient as the fiscal indicators rebound with the recovery 
in the economy. Thus, focusing on boosting GDP growth would be pivotal for enabling a 
sustainable fiscal path in the medium term.
53 Fiscal Developments
15% of their budget in each of the first two quarters. However, even in Category B and C 
Ministries, spending on domestic capital expenditure was permitted beyond these ceilings. This 
categorization enabled the Government to ensure that funds for essential activities were made 
available in full despite a sharp contraction in revenue receipts, and that scarce resources were 
conserved for re-prioritisation.
2.6 With effect from the third quarter, the spending ceilings were relaxed on the basis of 
revised full year allocations. The revised allocations reflected a substantial re-prioritisation of 
expenditure to those sectors with the most positive effect on the economy, either in terms of 
re-kindling growth or meeting welfare needs. Ministries were allowed to decide the timing of 
expenditure within the revised allocation. Despite the absence of curbs on capital expenditure, 
the pace of capital expenditure was restrained in the first two quarters on account of movement 
restrictions in containment zones, and unwillingness or inability of contractors and workers to 
carry out works.
2.7 With the easing of movement and health-related restrictions in the third quarter, the pace of 
government expenditure has picked up sharply. Second to pandemic relief, the Government has 
placed maximum priority on productive domestic capital expenditure which has a high multiplier 
effect on the economy. The capital expenditure for April to December 2020 (Flash)
2
 stood at 
` 3.17 lakh crore, 24 per cent higher than the capital expenditure during the corresponding 
period in the previous year. The total expenditure also recorded a YoY growth of 11 per cent, 
increasing from ` 21.1 lakh crore during April to December 2019 to ` 23.4 lakh crore during 
April to December 2020 (Flash). An analysis of the monthly expenditure also shows that the 
total expenditure registered an increase during the last three months of the year 2020 by 9.5 
per in October, 48.3 per cent in November and 50.2 per cent in December (Flash) compared to 
the same months in the previous year. Moreover, the capital expenditure during the last three 
months of the year 2020 recorded a phenomenal growth of 129.5 per cent in October, 248.5 
per cent in November and 81.9 per cent in December (Flash) as compared to same months in 
previous year (Figure 1). It can clearly be seen that by timing the expenditure push, especially 
the capital expenditure, after the reduction in health-related curbs, the growth “bang” for the 
fiscal buck has been maximized.
Figure 1: Growth (YoY) in monthly Expenditure during FY 2020-21  
-7%
57%
116%
-47%
-21%
-39%
129%
249%
82%
-100%
-50%
0%
50%
100%
150%
200%
250%
300%
Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec 20
(Flash)
Growth in Capital  Expenditure Growth in Revenue Expenditure
Source: Department of Expenditure 
2
Flash figures from Office of CGA as on 11
th
 January 2021.
54 Economic Survey 2020-21   V olume 2
2.8 Recovery is also evident on the revenue front, as the monthly gross GST collection
3
 has 
crossed the ` 1 lakh crore mark consecutively for the last 3 months (Figure 2). Monthly GST 
revenues for the month of December 2020 stood at ` 1.15 lakh crore, after registering a 12 per 
cent growth in the GST revenues over December 2019 (Figure 3). This has been the highest 
monthly GST collection since the introduction of GST. The recovery in GST collection has been 
due to the combined effect of the rapid economic recovery post pandemic and the nation-wide 
drive against GST evaders and fake bills along with many systemic changes introduced recently, 
which have led to improved compliance.
Figure 2: Recovery in GST collections during 2020-21
0
0.2
0.4
0.6
0.8
1
1.2
1.4
Rs lakh crore
Source: Department of Revenue
Figure 3: Trends in GST collection during 2020-21
1.14
1.00
1.00
1.02
0.98
0.92
0.95
1.03
1.03
0.32
0.62
0.91
0.87
0.86
0.95
1.05
1.05 1.15
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Apr May Jun Jul Aug Sep Oct Nov Dec
In Rs Lakh crore
2019-20 2020-21
Source: Department of Revenue
3
Centre and States taken together
55 Fiscal Developments
2.9 The remaining section analyses the performance of fiscal indicators and their components 
for period April to November 2020. The data on Government accounts for April to November 
2020, released by the Controller General of Accounts, show that the fiscal deficit of the Central 
Government at end November 2020 stood at 135.1 per cent of the BE compared to 114.8 per 
cent during the same period in 2019-20 (Table 1). Given the enormity of the situation faced 
by the pandemic, most of the countries including India have been fiscally strained, which 
reflected in the deficit figures. In order to cater to the increased demand for resources required 
by the Government, the target for gross market borrowings of the Central Government 
for the financial year 2020-21 was revised from the Budget estimate of ` 7.8 lakh crore to 
` 12 lakh crore.
Table 1: Provisional Outcome for 2020-21 (Up to November 2020)
2020-21 
BE
In ` lakh crore
Percentage of 
respective BE
Growth over last year 
(per cent)
2019-20
(Apr – Nov)
2020-21
(Apr – Nov)
2019-20
(Apr – Nov)
2020-21
(Apr – Nov)
2019-20
(Apr – Nov)
2020-21
(Apr – Nov)
1 Revenue Receipts 20.21 9.83 8.13 50.1 40.2 13.0 -17.3
2 Gross tax revenue 24.23 11.74 10.26 47.7 42.4 0.8 -12.6
3
Assignment to 
States
7.84 4.22 3.34 52.1 42.6 -2.3 -20.7
4
Tax Revenue (net 
to Centre)
16.36 7.51 6.88 45.5 42.1 2.6 -8.3
5 Non Tax Revenue 3.85 2.33 1.24 74.3 32.3 67.8 -46.6
6
Non Debt Capital 
Receipts 
2.25 0.29 0.18 24.2 8.1 10.4 -37.5
7 Non Debt receipts 22.46 10.12 8.31 48.6 37.0 12.9 -17.9
8 Total Expenditure 30.42 18.20 19.06 65.3 62.7 12.8 4.7
9
Revenue 
Expenditure
26.30 16.06 16.65 65.6 63.3 13.0 3.7
10
Capital   
Expenditure
4.12 2.14 2.41 63.2 58.5 11.7 12.8
11 Revenue Deficit 6.09 6.23 8.52 128.4 139.9 13.0 36.8
12 Fiscal Deficit 7.96 8.08 10.76 114.8 135.1 12.7 33.1
13 Primary Deficit 0.88 4.66 6.92 1076.5 785.3 26.5 48.5
Source: CGA Monthly Accounts; BE: Budget Estimates
2.10 The non-debt receipts have been adversely hit by the slump in economic activity after the 
pandemic outbreak. During April to November 2020, the non-debt receipts have registered a 
growth of -17.9 percent relative to the corresponding period last year (Table 1). This shortfall is 
attributed to a fall in all components of non-debt receipts viz. net tax revenue, non-tax revenue 
and non-debt capital receipts. The Non-Tax revenue collections up to November 2020 registered 
a decrease of 46.6 per cent relative to the corresponding period last year. This was led by a 
decrease in dividends and profits by ` 0.88 lakh crore over April to November 2019, which 
stood at 45.4 per cent of BE.