India's April-August Fiscal Deficit At Under A Third Of Budget Estimate

The North Block of the Central Secretariat buildings, which houses the Ministries of Finance and Home Affairs, stands in New Delhi, India. (Photographer: Anindito Mukherjee/Bloomberg)

The central government's finances continue to benefit from improved tax revenues even as expenditure, at least until July, remained modest.

The fiscal deficit for the April-July period stood at Rs 4.68 lakh crore or 31.1% of the budget estimate of Rs 15.07 lakh crore, according to CGA data. In the year-ago period, the government's fiscal deficit had already surpassed budget estimates.

The central government had budgeted for a fiscal deficit of 6.8% of GDP for FY22. But the government may seek to narrow that budget gap target to 6.3% of GDP, Bloomberg reported.

"The fiscal deficit was not only lower in proportion to entire year's target but was also lower in value terms compared to FY20 and FY21," said Sunil Kumar Sinha, principal economist at India Ratings & Research Ltd.

Net tax revenue continued to surprise on the upside. This, together, with a higher-than-expected dividend from the central bank earlier this year, has meant that revenue receipts overall are looking strong so far.

Revenue receipts for the April-August period stood at Rs 7.93 lakh crore or 44.4% of budget estimate. This is much higher than the Rs 3.7 lakh crore or 18.3% of budget estimate collected during this period a year ago. It is also higher than the pre-pandemic year of FY20, when Rs 6.03 lakh crore or 30.7% of budgeted receipts had been collected.

Net tax revenue in the first five months of the fiscal stood at Rs 6.45 lakh crore or 41.7% of the budget estimate.

Net tax revenues in FY22 (April-August) were 126.7% and 59.4% higher than the corresponding period in FY21 and FY20, said Sinha. A sharp increase in corporate tax (159.7%) and a 2.5% decline in states' share in central taxes were mainly responsible for for the improved tax collections, Sinha added.

The healthy expansion in gross tax revenues in H1 FY22 relative to the pre-Covid level augurs that the upturn will sustain in the second half as well, even though a normalising base may dampen the pace of growth going forward. We expect gross tax revenues to exceed the FY22 budget estimate by at least Rs 2 lakh crore

Aditi Nayar, Chief Economist, ICRA

Expenditure picked up in August, the data showed. It may further accelerate as the government has removed spending curbs placed on its departments due to the pandemic.

Total expenditure stood at Rs 12.77 lakh crore or 36.7% of budget estimate. In the year-ago period, the government had spent Rs 12.47 lakh crore or about 41% of its budgeted expenditure.

Capital expenditure in April-August was at Rs 1.71 lakh crore or 31% of budget estimates. Revenue expenditure stood at Rs 11.05 lakh crore or 37.7%.

"Both revenue and capital spending saw a healthy increase in August 2021, more than offsetting the contraction seen in July 2021," said Nayar. Nevertheless, the revenue expenditure recorded a mild 2% growth in July-August 2021, which suggests that government final consumption expenditure may weigh on GDP for the second quarter of the fiscal year. "The robust 31% expansion in capital expenditure in this two month period will support the growth in gross fixed capital formation," she said.