New Delhi: The Centre’s fiscal deficit touched 59% of the budget target for 2022-23 in the first eight months, led by sharp growth in capital expenditure, moderate expansion in tax revenues, and higher transfers to states. While economists expect the fiscal deficit to overshoot the target in absolute terms in FY23 in view of the ₹3.26 trillion additional cash outgo towards fertilizer and food subsidies, the estimate of 6.4% of GDP may be met on account of higher-than-expected nominal GDP.
The gap between the Union government’s revenue and expenditure at ₹9.78 trillion during the April-November period is 40.7% higher than the corresponding period of last year, data by controller general of accounts released on Friday showed. Fiscal deficit in the first eight months at 58.9% of the budget target of ₹16.6 trillion set for FY23, against 46.2% reached in the same period a year ago.
Finance minister Nirmala Sitharaman said in Parliament earlier this month that the government is on course to meet the FY23 fiscal deficit target of 6.4% of GDP. The Parliament passed the supplementary demands for grants for 2022-23 that will provide the government with an additional ₹3.25 trillion.
“We expect the total receipts of the Union government in 2022-23 to exceed the budget estimate (BE) by an aggregate of ₹1.5 trillion. Based on this, we estimate the extent of overshoot in the fiscal deficit at around ₹0.8 trillion for FY23. As a proportion of GDP, fiscal deficit in FY23 is unlikely to exceed the FY23 BE of 6.4%, on a higher nominal GDP,” said Aditi Nayar, chief economist, ICRA Ltd.
Fiscal deficit arises when government spending exceeds its revenues.
The Union government contained the fiscal deficit for 2021-22 to 6.7% of gross domestic product, better than 6.9% estimated in the budget, primarily on higher than expected revenue collections and nominal GDP growth. The Centre aims to contain the fiscal deficit to 4.5% of GDP by 2025-26.
The government got approval for gross additional expenditure of ₹4.36 trillion towards fertilizer subsidy, food subsidy, payments to oil marketing companies for domestic LPG operations, and funds for Mahatma Gandhi National Rural Employment Guarantee Scheme. Of this, the net cash outgo aggregate to ₹3.26 trillion, with savings on account of higher receipts to the tune of ₹1.1 trillion.
Fiscal deficit for November widened to ₹2.2 trillion, up 48% from the year ago, and nearly 60% higher than ₹1.38 trillion in October. It was led by 21% growth in total expenditure compared to November 2021 and a 25.4% contraction in revenue receipts during the month. Capital expenditure rose by 87% year-on-year to ₹38,099 crore. Net tax revenue declined 34.5% in November compared to last year to ₹53,730 crore on account of contraction in corporation tax and excise duty mop up.
Economists expect the growth in tax revenues to moderate going forward.
“We expect strong revenue collection growth to slow down in the rest of FY23 due to a combination of factors including lower real growth and decline in inflation in the second half of 2022-23. However, despite this, financing additional expenditure due to higher food and fertilizer subsidy or any other unforeseen expenditure is unlikely to destabilize budgetary fiscal arithmetic,” said Devendra Kumar Pant, chief economist, India Ratings.
Revenue receipts in the April-November period at ₹14.23 trillion are merely 4.7% higher compared to last year, on the back of contraction in non-tax revenue and slowdown of tax revenues. The revenue receipts have touched 64.6% of the full year’s target up to November compared to 75.9% in the comparable period of 2021-22.
The total expenditure during this period at ₹24.42 trillion is 17.8% higher compared to last year. Capital expenditure, which is used to create assets like infrastructure and acts as a multiplier, was up 63.7% year-on-year at ₹4.47 trillion. It is nearly 60% of the full year’s estimate as against 49.4% in the corresponding period last year.
However, revenue expenditure, which comprises fixed obligations or ongoing operating expenses, such as salaries and pensions, was up 10.5% at ₹19.9 trillion compared to last year in the April-November period.
The government is trying to cut avoidable spending amid concerns of private investment slowdown due to monetary policy tightening.
Fitch in its ratings update last week expected the Centre to set a fiscal deficit target of 6% of GDP for 2023-24 in the upcoming budget and retain its 4.5% FY26 target. “Though we believe this may be difficult to achieve. Fiscal pressures could arise from upcoming national elections in May 2024, but the incumbent government’s dominant political position likely limits these risks,” it said.
The government earlier this month announced that beneficiaries of the National Food Security Act (NFSA) will get free foodgrains until December 2023. It, however, decided not to extend the Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) from 1 January, 2023, which was specially designed to support the poor amid the pandemic.
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