Centre’s fiscal deficit seen at 9.3% of GDP in FY23 vs 10.4% in FY22: Icra
- Icra said Budget FY23 should ring-fence the funds that can realistically be absorbed for capital expenditure and infrastructure spending. Such outlays will help fuel the investment cycle, create employment opportunities and improve domestic demand
NEW DELHI: A miss in the divestment target this fiscal may see India's fiscal deficit to rise to ₹16.6 trillion, or 7.1% of the GDP, in FY22, overshooting the budgeted target, Icra said on Wednesday.
In its assessment of the Indian economy, the ratings agency said that with the state governments’ fiscal deficit projected at a relatively modest 3.3% of GDP in FY22, the central government's fiscal deficit is estimated at 10.4% of GDP.
In the base case for FY23, Icra said it estimates the Centre's fiscal deficit moderating to ₹15.2 trillion, or 5.8% of GDP. Although the planned ceasing of GST compensation could cause the state governments’ fiscal deficit to rise to the cap of 3.5% of the GSDP set by the fifteenth Finance Commission, the Centre's deficit would still compress to 9.3% of the GDP in FY23, ICRA said.
“With a palpable buoyancy in tax collections, we expect the GoI’s gross tax receipts to overshoot the budgeted amount by a healthy Rs. 2.5 trillion in FY2022. However, the net tax revenue gains to the GoI would be nullified by the expected large miss on receipts from disinvestment and back-ended spending, especially on those items that were included in the Second Supplementary Demand for Grants. Consequently, we expect the GoI’s fiscal deficit to print at Rs. 16.6 trillion in FY2022, exceeding the budgeted amount of ₹15.1 trillion,” said According to Aditi Nayar, chief economist, Icra.
"FY23 Budget will face some constraints owing to an expected slowdown in the growth in indirect taxes following the excise relief provided recently, and the moderation in nominal GDP growth to 12.5% from the 17.5% expected in FY22. Besides, macro-economic uncertainty would linger on account of the potential emergence of new mutations and fresh waves of Covid-19, which may eventually necessitate additional spending by way of extension of free foodgrains scheme and higher spending on MGNREGA. Given this backdrop, the GoI’s ability to cement higher growth in direct taxes and garner disinvestment receipts would play a critical role in determining the extent of the fiscal consolidation that is feasible in FY2023,” she added.
Even with this uncertainty, Icra said Budget FY23 should ring-fence the funds that can realistically be absorbed for capital expenditure and infrastructure spending. Such outlays will help fuel the investment cycle, create employment opportunities and improve domestic demand.
“At the same time, rationalising of Centrally-sponsored schemes and Central sector schemes would enhance fiscal space, and further improve the quality/efficiency of expenditure,” Nayar said.
Icra has highlighted two scenarios – a base case (impact of current Covid wave limited to Q4 FY22 and no fresh Covid wave in FY23) and an adverse case (moderate Covid wave in FY23). In the base case, the Centre's fiscal deficit is pegged at ₹15.2 trillion, or 5.8% of GDP, with net G-sec issuance placed at ₹9.1 trillion.
In the adverse case, Icra projects fiscal deficit at a higher ₹17.9 trillion (or 6.9% of GDP), driven by two major outlays intended to bolster confidence amongst households, amid lower indirect taxes and compressed disinvestment flows. First, a likely distribution of free food grains for a period of six months under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) could cost ₹0.9 trillion, while spending on MGNREGA to support the rural economy could necessitate an additional outlay of ₹0.3 trillion over and above the baseline estimate.
"In the adverse scenario, we foresee a potential net loss of revenue receipts of ₹1.0 trillion, along with a shortfall of ₹0.5 trillion in the disinvestment receipts. In this scenario, the GoI’s net market borrowings are placed at a higher ₹10.7 trillion,” Ms. Nayar added.
Funding of 80% of states’ estimated fiscal deficit of ₹9.1 trillion by state development loans (SDLs), suggests a net issuance of Rs. 7.3 trillion. This entails total Centre and state net dated market borrowings for FY23 in a range of ₹16.4 trillion (base case) to ₹18.0 trillion (adverse case). Adding the redemption of G-sec and SDLs indicates substantial gross borrowings in the range of ~Rs. 22.6 trillion to Rs. 24.3 trillion in FY23, up from an estimated ₹20.9 trillion in FY2022.
The rise in dated borrowings will exert upward pressure on yields, exacerbating the impact of the expected hike in the repo rate of 50 bps in the coming fiscal, the ratings agency added.
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Business NewsEconomyCentre’s fiscal deficit seen at 9.3% of GDP in FY23 vs 10.4% in FY22: Icra
First Published:12 Jan 2022, 04:38 PM IST
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