A five-chart report card on govt finances in FY23 so far

Tax revenues are up 26% year-on-year, though it could be on a lower base. Photo: Shutterstock
Tax revenues are up 26% year-on-year, though it could be on a lower base. Photo: Shutterstock


  • Monthly data for the Union government’s finances shows it has much to be hopeful about in 2022-23.

Union Budget 2022-23, presented by the government on 1 February, aimed to walk the tightrope between spurring growth in the economy by spending to build new assets and reverting back to a path of fiscal discipline after the covid-19 pandemic upended many plans and calculations. Each month the government puts out numbers on how its finances are faring, with the latest data being for July 2022, which is effectively a one-third point of the financial year. (Data for August is due this week.) Here are five notable takeaways from this data on how the government has fared for the four-month period from April to July.

1. Targeted growth

To maintain the above objectives, the government was banking on strong growth in its revenues, largely led by taxes. Further, it aimed to tighten its belt on running expenses, while channelling more into spending that created new assets and had a ripple effect on other parts of the economy. The monthly numbers indicate it’s on course. The government’s tax revenues till July amount to 34.4% of its full-year target. On a year-on-year basis, tax revenues are up 26%, though this could be on a lower base, as the economy was hit by the second wave of covid-19 in April-May 2021.

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Overall, growth in receipts has exceeded growth in spending in this four-month period. Even within spending, revenue expenditure (running expenses like salaries and administration) has grown at a rate slower than previous comparable years. Meanwhile, capital expenditure (which creates new assets) has jumped.

2. Deficit control

Tax revenues, the principal component of government receipts, have surged in the last two years. Net tax revenues of the Centre for April-July 2022 have increased 127% over the April-July 2018 figure. During the same period, total expenditure grew by 27%. As a result, the Centre is able to fund a greater portion of its expenditure from its receipts. Five years ago, its revenues amounted to only 39% of its expenditure, the balance being met by borrowing. In the ongoing financial year, the ratio is 70%.

At the same time, since the size of the budget is increasing and economic growth has been muted, the deficit as a share of the gross domestic product (GDP) remains high. During the pandemic, fiscal deficit soared from 3.4% of GDP to 9.2% in 2020-21 and 6.9% in 2021-22. The target for this year is 6.4%. A good showing on the tax front is half the battle won in pulling back this figure to prudent levels.

3. Tax buoyancy

For the full year 2022-23, the Union Budget projected year-on-year growth of 22-23% in the three main tax heads: corporation tax (paid by companies), income tax (paid by individuals) and goods and services tax (or GST, paid by consumers). At the one-third point in the financial year, central GST collections amount to 40% of the full-year target, income tax 36% and corporation tax 28%.

On a year-on-year basis, all three have shown a healthy increase, though this might be slightly amplified by the low base effect of April-July 2021, when the second wave of covid-19 was raging. Still, all three tax heads show a buoyancy not visible in the immediate pre-pandemic years. This points towards the continuing trend of India Inc. posting higher profits and tax-paying individuals seeing higher incomes. Given that only 81 million of India’s estimated population of 1.4 billion pay taxes, concerns over growth not being wide and equitable remain.

4. Dividend divide

Revenues beyond taxes are also keeping pace, having met 33% of the full-year target. Non-tax revenues are the smaller part of the receipts puzzle—12% of total receipts for 2022-23. The concern here remains what the collections are signalling. The first relates to disinvestment of public sector undertakings (PSUs). A lower target for the year effectively signalled a slowing in the process of selling PSU businesses.

The second is receipts from dividends and profits, the big head in non-tax revenues. In recent years, India’s central bank has been making large dividend payouts to the Centre. The same is the case with PSUs and state-owned banks. Large dividend payouts means PSUs are left with less to reinvest in the business. In the past five years, the BSE PSU Index has gained a mere 8%, against 86% for the bellwether BSE Sensex. This year’s target is big, which means PSUs will be under pressure to make large, front-loaded dividend payouts.

5. Capital push

On the expenditure side, the big head to watch is capital spending. This is what the government spends to build capital assets like roads, ports and railway tracks, which grease the wheels of the economy and feed growth numbers. Latest numbers show the government is making a push, with the volume of spending putting earlier years in the shade. However, at the one-third point, only 28% of the full-year target has been met.

Just five ministries/departments are projected to account for 75% of the total capital spend. Two have maintained the pace of spending: road transport and highways (spending 43% of its full-year target so far) and railways (42%). The three that have not kept pace are defence (26%), housing and urban affairs (20%) and telecom (1%). The government will be hoping they will catch up, and that tax revenues will stay buoyant.

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