Govt effectively cuts FY22 borrowing plan
2 min read 28 Sep 2021, 12:26 AM ISTCentre to absorb ₹1.59 trillion of additional borrowing for GST compensationCentre says it will borrow ₹5.03 trillion in October-March
PremiumBuoyed by robust tax collections, the government on Monday effectively cut its gross borrowing target for the fiscal year by announcing that it will absorb ₹1.59 trillion of additional borrowing for tax compensation to states within its annual target.
This, in effect, reduces the annual gross borrowing target to ₹10.46 trillion for the year to 31 March from the budgeted ₹12.05 trillion.
On Monday, the Centre said that it would borrow ₹5.03 trillion in the six months to end-March after borrowing ₹7.02 trillion in the first half. But in a surprise move, the government announced that the second-half borrowing “also factors requirements for the release of the balance amount to states on account of back-to-back loan facility in-lieu of GST (goods and services tax) compensation during the year".
The Centre’s borrowing calendar for the second half has provided a positive surprise, said Aditi Nayar, chief economist, ICRA Ltd.
“The implication is that the government’s fiscal deficit will be around ₹1.6 trillion lower than budgeted, despite the modest rise in expenditure, a clear confirmation of the revenue upturn that is underway. This also suggests that the government’s disinvestment programme is assessed to be on track," she added.
After the GST Council meeting in May, it was decided that the Centre would borrow ₹1.59 trillion and release it to states on a back-to-back basis to make up for the inadequate compensation given to them for revenue losses incurred due to the implementation of GST.
The Centre released ₹75,000 crore to states under this facility in July.
The ₹1.59 trillion borrowing does not impact the Centre’s fiscal deficit as it would be reflected as capital receipts of the state governments and as part of the financing of their respective fiscal deficits.
Care Ratings’ chief economist Madan Sabnavis said the government is making heroic assumptions about disinvestment and non-tax revenue even as telecom fee deferments will impact revenue collections.
This may also reduce the fiscal deficit of the Centre from the budgeted 6.8% of gross domestic product (GDP). “Given the tax buoyancy, we expect the fiscal deficit to be around 6.6% of GDP. Of course, disinvestment is the joker in the pack," said Sunil Kumar Sinha, principal economist at India Ratings.
The robust 17% growth in the Centre’s gross tax collections so far in FY22, relative to the pre-covid period, signals the waning impact of the pandemic on Indian macros.
Gross direct tax receipts in the first half of the current fiscal jumped 47% from a year earlier to ₹6.46 trillion, showing the recovery in the economy is underway.
On the indirect tax side, GST collections recovered from the initial months of this financial year when mobility restrictions affected revenue receipts. As a result, central and state governments collected ₹1.12 trillion in GST in August for transactions in July.
Enthused by robust tax collections, which are expected to cross the budgeted target for FY22, the Centre on Friday withdrew its earlier diktat directing most central government departments and ministries to limit their expenditure to 20% of the budget estimate for the September quarter.
Also, instructions regulating bulk items of expenditure amounting to more than ₹200 crore have also been relaxed for items pertaining to budgeted capital expenditure for the remaining part of the current financial year.
