Centre's fiscal deficit at 35% of budget estimates vs 115% a year ago

To be lower than budgeted 6.8%, say economists even when total expenditure is expected to exceed BE

India’s fiscal deficit for April-September period compressed to 35 per cent of the Budget Estimates (BE) from 115 per cent in the same period last year. This is even lower than the pre-Covid level (FY20) of Rs 6.5 trillion.

The government could limit the fiscal deficit to 4-year low to Rs 5.26 trillion mainly due to substantial 50 per cent revenue growth in September, benefitting from robust advance taxes and indirect taxes.

The Controller General of Accounts data showed the government received Rs 10.8 trillion (27.3 per cent of the corresponding BE 2021-22 of total receipts) up to September. This comprises Rs 9.2 trillion of tax revenues, Rs 1.60 trillion of non-tax revenues, and Rs 18,118 crore of non-debt capital receipts.

The expenditure incurred by the Centre was Rs 16.3 trillion (46.7 per cent of the corresponding BE 2021-22).

According to economists, fiscal deficit in the current financial year is likely to be lower than budgeted, even when total expenditure is expected to exceed the BE.

“We expect the fiscal deficit to print at Rs 13.8-14.8 trillion or 6.0-6.5 per cent of GDP in FY2022, as compared to the budgeted Rs 15.1 trillion or 6.8 per cent," said Aditi Nayar, Chief Economist, Icra.

However, considering the net outgo related to the First Supplementary Demand for Grants of Rs 237 billion, the increase in fertiliser subsidies for the rabi season, and the likely enhancement that may be needed in the allocation for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), the government's total expenditure also may exceed the FY22 BE, but by a relatively moderate Rs 600-800 billion, Nayar added.  

They say that the fiscal deficit was not only lower in proportion to entire year’s target but was also lower in value terms compared to previous fiscal --FY21 and FY20.

“Notwithstanding a low base of FY21, the revenue performance has been fairly good in the first half of the FY22 due to pickup in economic activity. The net tax revenue in the April-September period was 100.80 per cent and 51.57 per cent higher than corresponding period in FY21 and FY20. Sharp increase in custom duties (129.64 per cent), followed by corporate tax (105.14 per cent) and 0.08 per cent year-on-year growth in state’s share in central taxes were mainly responsible for it, said Devendra Pant, India Ratings and Research.

In addition to that, higher than budgeted surplus transfer by the Reserve Bank to the anticipated extra net tax revenues, government revenue receipts (net of devolution to states) may exceed the FY22 BE by a considerable Rs. 1.9 trillion, they say.

Interestingly the government is still maintaining Rs 1.81 trillion surplus cash balance with RBI at end-September 2021 (end-March 2021: Rs 1.82 trillion). With such a huge cash surplus with the central bank, the government is on a strong wicket to either improve expenditure or reduce market borrowing, Pant highlighted.

The revenue expenditure in the first half of the fiscal grew 6.33 per cent compared to FY21 and 7.35 per cent compared to FY20.

“A better metric to gauge the quality of the spending is the non-interest revenue expenditure which can provide impetus to the growth in the economy. It is perplexing that the non-interest revenue has barely grown in comparison to FY20 (0.2 percent ) and expanded by 2.5 per cent in comparison with FY21. However, the capital expenditure seems to have gained some pace as it was 1.22x and 1.38x of 1HFY20 and 1HFY21, respectively, according to Pant.

After the ramping-up of spending seen in the month of September, economist anticipate that expenditure will remain robust in the second half of this year, as all ministries have now been permitted to spend as per their own approved budget for this year.