Govt has managed revenue deficit better than overall fiscal deficit in FY22

This was despite revenue expenditure accounting for 53.7 per cent of Budget Estimates, while capital expenditure was 45.7 per cent during the first seven months of the current financial year

Revenue deficit has been better managed by the government than the overall fiscal deficit during the first seven months of the current financial year, compared to the corresponding period of the previous financial year.

The Centre's revenue deficit was just 27.5 per cent of Budget Estimates till October of the current financial year, while fiscal deficit was 36.3 per cent of budget estimates. The gap between fiscal and revenue deficit is the excess of capital expenditure over capital receipts.

Revenue deficit is the excess of revenue expenditure over revenue receipts. Revenue expenditure is made for meeting current requirements and does not generate assets to finance subsidies, salaries and pensions. Revenue receipts consist of tax and non-tax revenues.

The situation was exactly opposite during the corresponding period of FY21. At that time, the revenue deficit was much higher than the fiscal deficit as a proportion to their respective budget estimates. While the fiscal deficit was 119.7 per cent of budget estimates, revenue deficit was 126.7 per cent.  

The better management of revenue deficit this time around was despite revenue expenditure accounting for 53.7 per cent of Budget Estimates (BE), while capital expenditure was 45.7 per cent during the first seven months of the current financial year.

However, when it comes to growth, revenue expenditure rose by 7.5 per cent at Rs 15.73 trillion in the first seven months of the current financial year over the corresponding period of 2020-21, but capex was higher by 30.4 per cent at Rs 2.5 trillion year-on-year. Revenue expenditure grew by 11.94 per cent, while capex rose by 22.35 per cent during April-October in 2020-21.

It should be noted that the Budget for 2021-22 kept revenue expenditure projection lower by 5.1 per cent than what was actually spent last year. This was so because the government brought its subsidy regime above the line and spent a staggering Rs 30.8 trillion on revenue account during 2020-21, which was 31 per cent higher than the amount spent in the previous year. In fact, the actual revenue expenditure for 2020-21 was higher by 2.5 per cent over even the revised expenditure.

The trend of revenue expenditure proceeding faster compared to the budget estimates than capex would gain further momentum with the second batch of supplementary demand for grants. The government obtained Parliament's approval to spend Rs 3.74 trillion extra, which would hit the exchequer by Rs 2.99 trillion. Of this, Rs 62,000 crore is the capex towards payment of equity infusion into Air India Assets Holding Company (AIAHL) for repaying past government-guaranteed borrowing and dues related to Air India. The rest is mostly revenue expenditure such as fertiliser subsidies, export incentives, food warehouses, and rural job scheme.

The difference in the management of revenue deficit and overall fiscal deficit came from the revenue receipts of the Centre.

Says Aditi Nayar, chief economist at Icra: "High tax revenues and the large surplus transferred by the RBI have helped check the revenue deficit."

Devendra Pant, chief economist at India Ratings, said although the revenue expenditure growth in the first seven months was more than budgeted growth, buoyant tax revenues have resulted in better revenue deficit management. Besides, non-tax revenues also helped the government manage its revenue deficit efficiently.

Tax revenues of the Centre, after devolution to the states, grew 82.93 per cent during April-October of the current financial year, over the collections in the corresponding period of the previous financial year. On the other hand, tax collections posted 15.7 per cent contraction during the first seven months of the previous financial year, largely due to the Covid-induced lockdowns.

Similarly, non-tax revenues rose 78 per cent at Rs 2.1 trillion in the first seven months of FY'22 year-on-year against a 48 per cent decline in the corresponding period of the previous financial year. A bit less than half of this came from the RBI as it transferred over Rs 99,000 crore to the government.

However, when it comes to capital receipts. Non-debt capital receipts stood at just Rs 19,722 crore during the first seven months of the current financial year, constituting just 10.5 per cent of the BE at Rs 1.88 trillion. This was despite the fact that revenues under this head was up 20 per cent year-on-year. The biggest disappointment so far was disinvestment receipts which were pegged at a staggering Rs 1.75 trillion for the current financial year. They have fetched only Rs 9,333 crore till October of FY22.

All eyes are now on the LIC IPO and BPCL privatisation. The LIC IPO is expected to fetch the government Rs one trillion, though valuation of the biggest life insurer in the country is yet to be done.

The Centre is planning to offload about 10 per cent stake in LIC. To get Rs one trillion, LIC must be valued at Rs 10 trillion.

The government can get around Rs 45,000 crore more from BPCL by selling its entire 52.98 per cent stake in BPCL.

However, the government does not have much time in its hands, as only around three months are left for the financial year to end. 

Table Centre's fiscal deficit during the first seven months

Item	Budget Estimates*		Actual*		Actual as % of Budget Estimates
	2020-21	2021-22	2020-21	2021-22	2020-21	2021-22
Tax Revenues	16.36	15.45	5.76	10.53	35.2	68.1
Non Tax Revenues	3.85	2.43	1.16	2.07	30.2	85.1
Revenue Receipts	17.88	20.21	6.92	12.6	34.2	70.5
Non Debt Capital Receipts	2.25	1.88	0.16	0.19	7.3	10.5
Total Receipts	22.46	19.76	7.08	12.79	31.5	64.7
Revenue Expenditure	26.3	29.29	14.64	15.73	55.7	53.7
Capital Expenditure	4.12	5.54	1.97	2.53	47.9	45.7
Total Expenditure	30.42	34.83	16.61	18.26	54.6	52.4
Revenue Deficit	6.09	11.41	7.72	3.13	126.7	27.5
Fiscal deficit	7.96	15.07	9.53	5.47	119.7	36.3

* In Rs trillion; Source: Controller general of accounts