Fiscal deficit at 8.2% in April-May as tax collection rises, lockdowns ease

Deficit was less 30 per cent less of last-year's level amid the nationwide lockdown to contain the coronavirus.

India’s fiscal deficit in April-May stood at 8.2 per cent of the Budget Estimates (BE), as compared to 59 per cent in the same period last year.

The government could limit the fiscal deficit mainly due to better revenue receipts led by record Goods and Services Taxes (GST) collection and dividends from the Reserve Bank of India (RBI). The deficit was 30 per cent less than last year’s Rs 4.7 trillion.

Economists, however, fear that the deficit could be high going forward on account of higher outlay on the free food scheme and fertilisers subsidy and other sops announced by Finance Minister Nirmala Sitharaman on Monday as part of an economic relief package.

According to the government’s statistics office, fiscal deficit in the first two months of the current financial year was at Rs 1.23 trillion, making the amount 8.2 per cent of the BE. The net tax revenue was 15.1 per cent at Rs 2.33 trillion. While Net non-tax revenue was at Rs 1.16 trillion, which is 48 per cent of BE.

The better tax collection was mainly due to growth in GST collection in April and over Rs 1 trillion in May, while the jump in non-tax revenue was on account of RBI’s surplus transfer of Rs 99,122 crore to the central government.

Centre has set a target of Rs 2.43 trillion for non-tax revenue receipts, which includes dividend and profit from RBI, banks and other financial institutions. 

Without mentioning RBI, Controller of General Accounts (CGA) on Wednesday showed an amount of Rs 99,628 crore under ‘Dividend & Profit’ as part of non-tax revenue. “Tax revenues stood at Rs 1.4 trillion in May, which is very high relative to even the pre-Covid levels of Rs 0.9-1 trillion for the month in 2017-2019,” said Aditi Nayar, chief economist, ICRA.

Given the moderate growth of 9.5 per cent embedded in the Centre’s FY22 BE for gross tax revenues (relative to the provisional actuals for FY21), relative to our expectation of a nominal GDP expansion of 15-16 per cent in the current fiscal, we do not foresee the tax collections falling below the target, even with some eventual reduction in excise duty on fuels, Nayar added.

“The central government’s spending was under control as the usual subsidy payments for previous year, which happen in April-May did not take place this time, as the amounts were subsumed in the Budget. Therefore, outflow from department of food was lower,” said Madan Sabnavis, chief economist, CARE Ratings. The concerns going forward will be higher outlay on free food and fertiliser subsidy as well as other sops, added Sabnavis.

Another factor that helped limit the deficit was the prepayment of the Food Corporation of India’s liabilities of around Rs 1 trillion in FY21, providing a cushion of around Rs 1.5-1.6 trillion. 

This should be adequate to cover costs related to the free foodgrain and enhanced fertiliser subsidy of Rs 1.1 trillion, and the aforesaid fresh outlay of Rs 0.5-0.7 trillion for FY22 for the economic relief package, Nayar explained.