BackThe Union budget for 2023-24 is rather well placed on fiscal math
Total public debt will at most reach 86.9% of GDP by 31 March after three high-spend years and onshoring of off-budget items
PremiumAll credit goes to Finance Minister Nirmala Sitharaman and her team for extraordinary fiscal performance over three years of relentless pressure from the pandemic followed by the Ukraine war. During these three years, past off-budget borrowings were on-shored at the Centre, and two-thirds of the population saw their entitlement under the Food Security Act doubled in quantum, at zero incremental cost over 28 months in all. The doubling stands withdrawn as of January 2023, but the original quantum will be zero priced until December 2023.
During the current fiscal year closing on 31 March 2023, the Central fiscal deficit has held at 6.4% as budgeted, despite additional expenditure of ₹2 trillion on food and fertilizer subsidies. It helped that (nominal) GDP for the current year—at ₹273.08 trillion by the first advance estimate (FAE)—was higher by ₹15 trillion than the ₹258 million projected in Union Budget 2022.
To get the consolidated government deficit (Centre plus states) in 2022-23, we have to add on the states’ aggregate fiscal deficit, on which there is some uncertainty. States had a statutory fiscal deficit cap of 3.5% of GDP in aggregate, with an extra 0.5% conditional on power sector reforms so onerous that only 60% of them at most were likely to achieve it. Later in the year, states were allowed additional borrowing to pay their dues to pension funds for employees on the New Pension Scheme. Altogether these make for an outer limit on states’ aggregate fiscal deficit at 4% of GDP. A long-term zero interest loan from the Centre to states of ₹1 trillion was additional, but will get netted out when aggregated with the Centre’s numbers. But states faced two negative whammies. The Central ministry of finance ordered their off-budget borrowings in past years (estimated at ₹6 trillion in aggregate) to be brought on-budget in a staggered manner between this and the next three fiscal years. States’ market borrowing would have been reduced to accommodate this on-shoring within their permissible fiscal deficit, but they seem to have been cautious about utilizing even such market borrowing entitlement as they had. This is perplexing especially in view of a second whammy, of having been commanded to pay off current dues and past arrears to power sector utilities (this is independent of the power sector reforms needed to qualify for the additional borrowing entitlement).
For now, the outer limit on the aggregate fiscal deficit across the Centre and states is 10.4 % for 2022-23, which means the year closes (after adjusting the 2021-22 closing debt to the current year’s GDP) with a public debt level at 86.9 % of GDP at most. This is with external debt valued at current exchange rates, which is the right way to go; there is a parallel lower figure with external debt valued at historical exchange rates, which the International Monetary Fund (IMF) seems to be using. The percentages for 2022-23 are subject to change when GDP is revised at end-February and end-May, when the third and fourth quarter GDP data for the current fiscal year come in.
For the forthcoming 2023-24, the Centre’s fiscal deficit is budgeted at 5.9% of GDP. States will have a statutory cap of 3% on their deficit with an extra 0.5% conditional on power sector reforms, yielding an outer fiscal deficit limit of 9.4% across the Centre and states.
The Union budget has projected nominal GDP growth of 10.5 %. But the Economic Survey projects real growth for next year at 6.5 %, implying a budgetary expectation of less than 4% inflation. More realistically, nominal growth next year will be closer to 12 %. In that case, public debt will hold at the present year’s closing level, at around 87%, assuming that the real growth expectations of the Economic Survey are realised.
Growth, growth, growth. That is the need of the hour. The biggest growth booster, of course, is the eye-popping budgetary outlay of ₹10 trillion on infrastructure expenditure. Within this, the provision for 50-year interest-free bullet loans to states for capital expenditure has been raised to ₹1.3 trillion next year. However, revised estimates show that the total budgeted ₹1 trillion in the current year will be utilized only to the extent of ₹76,000 crore. The reason may well be that only 80% of the total was freely disbursed in accordance with states’ tax shares as set by the Fifteenth Finance Commission. This corresponds closely to the revised estimate of offtake under the scheme. The remainder of the budgetary provision was splintered into small pieces with usage restrictions accessible on a first-come first-served basis.
The same splintering afflicts the ₹1.3 trillion budgeted for the next year as well. Conditionalities and usage restrictions delay fund flow and impose onerous reporting and inspection burdens on both the disbursing Central department and the reporting state government department. The initial punch of the scheme, begun in the pandemic year 2020-21 to increase states’ appetite for capital expenditure, and in particular for the completion of incomplete projects, has been lost, I fear. But the freely disbursable component is welcome, and will hopefully do its bit for spatially dispersed growth across the country.
Indira Rajaraman is an economist
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