India’s overall fiscal deficit for the current fiscal year will be well above the level it was at during the Global Financial Crisis. IMF data show that while the total fiscal deficit, including both the centre and the states was 10 percent of GDP in 2008-09, the year of the Lehman collapse, it is expected to be 12.1 percent of GDP in the current fiscal year.
There’s one big difference though. India’s fiscal deficit was already a high 7.9 percent of GDP in 2019-20, as a result of the steep fall in growth last fiscal year and also partly because of the impact of the pandemic in March. And with the deficit already so high, it explains why the government has so far ignored the clamour for more spending.
Gross government debt is also expected to increase to a level well above that seen during the Lehman collapse. One reason why debt levels, as a percentage of GDP, were relatively low after the financial crisis was because inflation was high, thus inflating nominal GDP.
Most economists have however said that government should not worry about the deficit or rising debt levels. If more government spending is able to increase growth that could lead to a lower deficit as a proportion of GDP.