India's April-August fiscal deficit recorded at 32.6% of FY23 target

The Centre’s fiscal deficit for April-August FY23 came in at Rs 5.4 trillion, or 32.6 per cent of the Budget Estimate (BE) of Rs 16.6 trillion, official data showed on Friday.

This compares to a fiscal deficit of Rs 4.68 trillion for the same period last year, which was 31.1 per cent of the FY23 target.

The Centre is targeting a fiscal deficit for the year at 6.4 per cent of nominal gross domestic product.

Net tax revenue for the April-August FY23 period came in at Rs 7 trillion, some 8.5 per cent higher than the amount gathered for the same period last year. Non-tax revenue for the first five months of FY23 stood at Rs  1.17 trillion, 21 per cent lower than April-August FY22, while non-debt capital receipt was Rs 31,527 crore, more than double of last year.

“The fiscal situation is more of interest today due to the recent decision to extend the free food scheme for the poor. Revenue collections have been buoyant while there is uncertainty on the achievement of the disinvestment target. However, the government is confident that the borrowing programme will not be breached as set by the Budget,” said Madan Sabnavis, chief economist, Bank of Baroda.

Sabnavis said the progress till August shows that the government’s accounts are on course compared with last year.

Revenue expenditure for April-August was Rs 11.38 trillion, 35.6 per cent of BE of Rs 31.95 trillion and just 3 per cent higher than revenue expenditure outlay for the same period last year. The Centre’s healthy capital expenditure trend continued, with capex of Rs 2.52 trillion nearly 47 per cent higher than the Rs 1.72 trillion spent in April-August FY22.

Total expenditure of Rs 13.9 trillion for April-August FY23 has reached 35.2 per cent of the Budget size of Rs 39.4 trillion, compared with 36.7 per cent for April-August FY22. This slight expenditure compression was on the revenue expenditure side.

“While the YoY growth remains high, capital spending has averaged around Rs 50,000 crore per month, lower than the required monthly average of Rs 62,500 crore to meet the FY23 BE (Rs 7.5 trillion), with a slow pick-up in the disbursals under the interest free capex loan for state governments,” said Aditi Nayar, chief economist, ICRA.

Nayar said tax devolution to states would need to be as high as Rs 9.3 trillion this year, overshooting the Budget Estimates by more than Rs 1 trillion and therefore, the amount left to be disbursed to the states in the remainder of the year is quite substantial, warranting a reassessment of the monthly releases in the next quarter.

“The second half will be critical from two angles. First, tax collections will be tested under GST based on sustenance of consumption spending. Second, government would have to expedite its capex programme. These two will hold the clue to the fiscal numbers,” said Sabnavis.

In spite of higher-than-budgeted food and fertilizer subsidy outlay this year, officials and analysts say the fiscal deficit target for the year — of 6.4 percent of nominal GDP — can still be achieved. This confidence is reflected in the reduction of the FY23 borrowing target.

The healthy direct and indirect tax revenues this year, including goods and service tax, are expected to substantially make up for the expenditure overshoots. Additionally, nominal GDP this year is expected to be higher-than-anticipated this year due to the impact of inflation. Since fiscal deficit is taken as a percentage of nominal GDP, this will be beneficial for the final figure.

“There are several upside risks to the fiscal deficit target, emanating from the need for additional spending on food, fertilizer, and LPG subsidies through the year, the revenue loss to the Centre on account of the excise duty, etc,” Nayar said.

However, a large part of this would be absorbed by higher-than-estimated non-excise taxes, savings on account of lower wheat procurement, as well as the windfall tax on domestic crude oil production and export duties on petroleum products,” she said.