Some fiscal space has been built into the Budget FY24, to deal with higher spending requirements from external shocks, like higher outlay than budgeted for fertiliser subsidy, according to finance secretary TV Somanathan. Gross tax receipts could grow at 11%, against 10.5% budgeted, and there could be savings of about Rs 50,000 crore in the Rs 10 trillion capex budget. The government will also continue with the windfall taxes fuel products to deal with unfavourable fiscal conditions if crude prices surge, he told Prasanta Sahu in an interview.
The threat to the Centre’s finances in FY24 could come from a potential spike in subsidies and higher interest costs. How do you plan to deal with it?
As far as fertiliser subsides are concerned, what we have provided (`1.75 trillion) is more than adequate. Subsidy requirement will likely be less because though prices have fallen by more than 20%, but we have reduced allocations only by 20%. We have not taken the current import price, we have taken an average price over a period. So, it gives us some space in case there is an increase in fertiliser prices. There is not much risk there. On petroleum, the range of crude prices will remain roughly the same as this year and there will be no further loss of revenue (from any potential adjustment in excise duty).
The reduction in fiscal deficit next year – 50 bps – equivalent to the estimated fall in subsidies. Other items of revenue spending hasn’t been controlled in the aggregate.
It is a balance between the need to support growth in a year when global growth may be slowing down. We felt an increased impetus is required domestically to compensate for the (adverse) external factors. Therefore, fiscal consolidation has been moderated to 0.5% instead of 0.7%, which it should have been if we were to go on a trajectory (to reduce fiscal deficit to below 4.5% by FY26). A slight backloading is there. But, we feel, the increased economic growth that would result from higher spending will help us to consolidate in future because the expansion of GDP is one of the best ways of consolidation.
The government benefited from positive surprises on the revenue front in FY23…
Next year, the positive surprises could come from direct taxes, goods and services tax and lower fertilizer subsidy if global oil and gas prices ease. Negative surprises are very upsetting to the market. It raises the cost of borrowing, and reduces credibility. We are always prepared if something goes wrong. This year, it went hugely wrong as we didn’t expect Ukraine war and still we managed the fiscal deficit of 6.4% of GDP as we had some reserves (in terms of `1.4 trillion extra net tax revenues). But, next year, we are tight also because the fiscal deficit has to be reduced to 5.9% and we provided Rs 10 trillion for capex. Depending on utilisation and capacity, capex might reach `9.5 trillion or thereabouts in FY24. There’s some room in taxes as we have only predicted a 10.5% growth in gross tax revenue, but 11% growth is quite likely.
Why have the allocations for the rural job guarantee programme been cut to Rs 60,000 crore for FY24 from Rs 89,400 crore (FY23RE)?
The combined increase in outlay for the Jal Leevan Mission and PM Awas Yojana next year is about Rs 40,000 crore. The same areas where these works are going on are also the catchment area of NREGP. So, we expect some offsetting reduction in demand in NREGP. Secondly, the economy has normalized compared to 2020. So, we expect demand levels to go back to FY20 levels. These two factors should reduce the offtake of NREGP work and if it doesn’t, and if there is a genuine demand, we will again top up the allocation at the revised estimate stage.
Why capex support was scaled down to Rs 76,000 crore for states in FY23 from the initial estimate of Rs 1 trillion. Do you think states will be able to utilise Rs 1.3 trillion earmarked for them in FY24?
It is more of a problem conditionality in FY23. Untied funds (80% of Rs 1 trillion in FY23BE) had this fiduciary condition that the states should not contradict any of the central government scheme’s brand names. That condition delayed fund release to many states. The tied portion (Rs 20,000 crore for FY23BE) was attached to reforms and that never gets utilised fully. Next year, this problem will not be there because all states are now on board in compliance with the fiduciary condition for untied funds. We expect most of the Rs 1.3 trillion loan including tied funds will be utilised by states in the next financial year.
Will windfall taxes on petroleum products continue next year?
Global crude prices keep on fluctuating and if it goes up again, we need it. The world situation is still very uncertain that (Ukraine) war is not ending. To deal with fiscal consequences if there’s no instrument, then, we have to again invent which is more difficult. The tax rates are moderate now.
The Budget hasn’t provided a medium-term FRBM roadmap…
We are more specific on the end game. The situation is too fluid. There are too many uncertainties for us to give the exact year-wise target but we are sticking with the target of taking fiscal deficit to below 4.5% by FY26.
Government capex has been given a huge push for the third year in a row. Are you hopeful that the private capex will accelerate now?
I am hopeful though I have no data to support my statement. The chief economic advisor has said that investment intentions are improving.
There was a demand that to promote investment the condition that new manufacturing firms have to start production by March 2024 to avail of the lower corporate tax rate of 15% needs to be extended further. The date was given, so, it is better to stick to it. If extended, it also reduces the speed at which people want to invest. So, it has both effects.