Economic Survey: Strong rebound in revenues ensures enough fiscal space

The strong revival in government revenues means the government has enough fiscal space to provide additional support to boost growth momentum, the Economic Survey said

The strong revival in government revenues means the government has enough fiscal space to provide additional support in the form of higher capital expenditure allocation to boost growth momentum, the Economic Survey said on Monday.

“The fiscal support given to the economy as well as to the health response caused the fiscal deficit and government debt to rise in 2020-21. However, a strong rebound in government revenues in 2021-22 has meant that the Centre will comfortably meet its targets for the year while maintaining the support, and ramping up capital expenditure. The strong revival in revenues (revenue receipts were up over 67 per cent YoY in April-November 2021) means that the government has fiscal space to provide additional support if necessary,” the Survey said.

On account of a sustained revenue collection and a targeted expenditure policy by the government, the fiscal deficit for April-December has been contained at 50.4 per cent of Budget Estimates (BE), which is nearly one third of the proportion reached during the same period of the previous year (145.5 per cent of BE in April-December 2020).

“This implies that the government has the fiscal capacity to maintain the support, and ramp up capital expenditure when required. The strong revival in revenues also provides the government with fiscal space to provide additional support as well, if necessary,” the Survey added.

The Survey said the “agile fiscal policy” approach adopted by the government, coupled with the buoyant revenue collection received so far this year, has created headroom for taking up additional fiscal policy interventions based on the need of the evolving situation. “The targeted focus on capital expenditure, with its resulting multiplier effects, will be vital in sustaining the economic growth,” it added.  

The Survey said as the economy grows further, the revenue collection from all the sources is expected to be more robust, which will help strengthen the fiscal position on one hand and create fiscal space on the other.

“Thus, it is expected that reaching the Budget Estimates for fiscal deficit during 2021-22 will not be a concern for the central government. A robust economic growth path and various tax policy and administration reforms undertaken over the past few years will be fundamental in sustaining the buoyant revenues in the medium term, and thus, be on track with the fiscal path outlined by the Medium-Term Fiscal Policy Statement,” it added.

The government has set a fiscal deficit target of 6.8 per cent of GDP for FY22. Despite an expected shortfall in disinvestment receipts, the government is expected to meet its target due to robust revenue receipts.