India's April-September Fiscal Deficit At 37.3% Of Full-Year Target

The central government's fiscal deficit for the April to September 2022 period is at 37.3% of its target for the full fiscal.

The fiscal deficit for the first half of FY23 in actual terms stood at Rs 6.19 lakh crore out of the total budget estimate of Rs 16.6 lakh crore, or 6.4% of GDP for FY23, according to data from the Controller General of Accounts released on Monday.

It stood at Rs 5.26 lakh crore, or 35% of its full-year target, over the same period last year.

Aditi Nayar, chief economist with ICRA Ltd. expects the fiscal deficit to overshoot by Rs 1 lakh crore this year, owing to mounting food and fertiliser subsidy bill and excise cuts announced in May, despite an upside in non-excise tax revenues as well as savings.

As of September, the government's net tax revenues reported a growth of 10%, offsetting the 2% contraction in non-tax revenues and the 6% rise in revenue expenditure, and leading to a mild year-on-year compression in revenue deficit, Nayar said.

According to the government's accounts, the total expenditure was at Rs 18,23,597 crore, or 46.2% of the total target of Rs 39.44 lakh crore. Over the same period last year, the government had spent 46.7% of its budgeted target, indicating a similar trend in expenditure.

According to Rajani Sinha, chief economist at Care Ratings, in the current fiscal, the government's expenditure policy has been centred on asset creation and revenue rationalisation.  

A higher food and fertiliser subsidy will incur an additional outgo of Rs 3 lakh crore and add to fiscal pressure, pushing the deficit to around 6.5% of GDP, Sinha said. 

Key Highlights

• Capital expenditure was at 46% compared to 41% a year earlier.

• Revenue expenditure at 46% vs 48% in the corresponding period last year.

• Revenue receipts stood at Rs 11,69,561 crore, or 53.1% of the budgeted figures, compared to 60.4% last year.

• Net tax revenue stood at 52.3% against 59.6% last year.

• Non-tax revenue stood at 58.4% of the budget estimate compared to 66% in the previous financial year.

There is room for optimism in terms of tax revenues, which have remained buoyant. The centre's gross tax collections have shown healthy growth and will surpass the full-year budgeted target despite custom and excise duty cuts, Sinha said.

The government has also stepped up its tax devolution to states this year at Rs 3,76,106 crore from Rs 1,15,960 crore last year.

“While the scenario is optimistic on the tax collection front, the non-tax revenue could see some shortfall primarily due to lower dividend transfer from the RBI in the current fiscal. Overall, we expect the net revenue receipts to exceed the budget target by Rs 2.2 lakh crore,” Sinha said.

Capex Pace Still Trailing

The fiscal deficit has widened to Rs 6.19 lakh crore from Rs 5.26 lakh crore last year, mostly due to a near 50% year-on-year expansion in capital spending, Nayar said.

While capital expenditure may seem to have shown an uptick to Rs 3.42 lakh crore against Rs 2.29 lakh crore in the previous fiscal, the government is also targeting bigger capex spend this fiscal at Rs 7.5 lakh crore. By those standards, the spending pace still trails targeted levels, Nayar said.

“The spike in September 2022 has boosted the average capital spending of the GoI to around Rs 57,000 crore per month in H1 FY23, which nevertheless trails the required monthly average of Rs 62,500 crore to meet the FY23 BE (budget estimates).”

According to her, disbursals under the interest free capex loan for state governments remain muted at around one-tenth of the amount approved so far, underscoring the importance of faster execution by states in second half of FY23.

(Corrects an earlier version where the name of the economist Rajani Sinha was incorrectly mentioned.)