India's Fiscal Deficit Widens To 58.9% In First Eight Months

Fiscal deficit for the April-November 2022 period widened to 58.9% of its target for the full fiscal.

<div class="paragraphs"><p>500 rupees Indian bank notes arranged for photograph. (Photo: Usha Kunji/BQ Prime)</p></div>
500 rupees Indian bank notes arranged for photograph. (Photo: Usha Kunji/BQ Prime)

The central government's fiscal deficit for the April-November 2022 period widened to 58.9% of its target for the full fiscal.

In actual terms, the fiscal deficit stood at Rs 9.78 lakh crore against its annual budgeted figure of Rs 16.6 lakh crore. On the back of a higher nominal GDP, it is unlikely that the fiscal deficit will be more than 6.4% of GDP.

This outpaces the deficit level over the corresponding period last year, which was 46.2%. Compared to the previous month, the fiscal deficit has considerably widened from Rs 7.5 lakh crore in October to Rs 9.78 lakh crore in November.

The data released by the Controller General of Accounts for the first eight months of the year revealed that although revenue receipts peaked at over 64.6% of the target, capital spending reduced from its last month's pace, attaining only Rs 4.47 lakh crore of its Rs 7.5 lakh crore target, or 59.6% of the target.

According to Aditi Nayar, chief economist at ICRA, this could be due to transfers to states in the last month.

"While monthly capex stepped down to Rs 38,099 crore in November 2022 from Rs 66,125 crore in October 2022, the latter marked a sharp year-over-year jump, which was partly driven by a rise in the capital transfers to states, reflecting the release of funds under the interest-free capex loan scheme."

Despite stepping up devolution and reducing the cesses on fuel, the government collected a net tax receipt of 63.3% of the target, reinforcing robust tax collection expectations.

Total expenditure has also picked up in a big way, reaching Rs 24.4 lakh crore, or 61.9% of the target. Breaking it down monthly, Nayar explained that total expenditure rose by a substantial 21% in November 2022, led by a 15% increase in revenue expenditure and a sharp 87% year-over-year expansion in capital expenditure in that month, albeit on a small base.

ICRA expects the total expenditure of the government in FY23 to exceed the budget target by Rs 2.3 lakh crore.

The projection is based on the additional cash outgo announced in the First Supplementary Demand for Grants for FY23 and the expectations on the generation of savings of around Rs 1 lakh crore as seen in the recent past.

Total receipts are also expected to exceed the budget targets by an aggregate of Rs. 1.5 lakh crore. "Based on this, we estimate the extent of overshoot in the fiscal deficit at around Rs. 0.8 trillion for FY23," Nayar added.

Key Highlights

  • Capital expenditure was 59.6% at Rs 4.47 lakh crore, compared to 49.4% a year earlier.

  • Total expenditure is at Rs 24.42 lakh crore, which is 61.9% higher than 59.6% for the same period last year.

  • Revenue receipts stood at Rs 14.23 lakh crore, or 64.6% of the budgeted figure, compared to 79.6% last year.

  • Of this, net tax revenue stood at Rs 12.2 lakh crore, which is 63.3% against 73.5% last year.

  • Non-tax revenue stood at 73.5% of the budget estimate, compared to 91.8% in the previous financial year.

Capex On Target?

On a month-over-month basis, the spending on capex declined in November to Rs 38,099 crore from Rs 66,125 crore in October 2022. Capex is usually back-ended by governments, a pattern that was observed in the previous fiscal too.

Nayar explained that the balance of capital spending needed to meet the FY23 BE is 5% less than the actual capex incurred in December–March FY22. She suggested that the government is unlikely to miss the mark on its budgeted target. The only caveat to this math is if the states' offtake of the interest-free capex loan scheme trails by a significant amount. 

The 50-year interest-free capex loan has an allotment of Rs 1 lakh crore, with 80% untied and 20% tied to various schemes.

According to data released by the ministry earlier this month, capital investment projects of states worth Rs 73,880 crore have been approved under the capex loan scheme this fiscal.