The Centre may require to spend an extra Rs 1.8 trillion in aggregate over the Budget Estimate on fertiliser and food subsidies in FY23, finance secretary T V Somanathan said, but added that the additional outgo could be offset by a steep jump in net tax receipts and higher disinvestment revenues. In the end, the Budget balance sheet won’t be much different from what is projected, the official said.
Somanathan noted that extra outgo on fertiliser subsidy could be around Rs 1 trillion and that on food subsidy, about Rs 80,000 crore.
Another official said that the government has no plans at the moment to cut expenditures on other items from the respective BE levels, adding that a review of spending would be undertaken only at the time when the Revised Estimates (REs) are made. The review of BEs usually occurs after November-December in any financial year.
The fiscal deficit for FY23 is projected at 6.4% of GDP, of which revenue deficit is seen at 3.8% of GDP. In FY22, the Centre’s fiscal deficit was 6.9% and in the year before it was 9.2%, both much above the tolerable level under the Fiscal Responsibility and Budget Management (FRBM) framework. According to the new FRBM roadmap, the Centre’s fiscal deficit will be reduced to 4.5% by FY26 by sticking to a glide path.
Though Somanathan said it was too early make any precise estimate of the tax receipts in the current financial year, analysts and official sources indicated that the Centre’s tax receipts, net of transfers to the state could be a steep Rs 1.7 trillion higher than the BE of Rs 19.35 trillion.
The tax receipts are to be boosted by robust mop-up of direct taxes and the higher-than- expected goods and services tax (GST) collections. Additionally, proceeds of about Rs 20,560 crore from LIC IPO will come in as extra receipts as this was not factored in the Budget for the current fiscal year.
Another Rs 30,000 crore savings are expected from the reduced minimum support price operations of wheat, given the cereal’s high market rates and rising exports.
“Including the anticipated inflows from the LIC IPO, we expect the government’s net tax revenue and disinvestment receipts to surpass the FY23 BE by at least Rs 1.4 trillion (depending on whether excise duty is eventually reduced). This will create some fiscal space for the government, allowing it to absorb a large part of the risks related to additional spending that are evolving at the current juncture,” said Icra chief economist Aditi Nayar. The fertiliser subsidy outgo is likely to overshoot the FY23 Budget estimates of `1.1 trillion by a sharp `950 billion, Nayar said.
“All time high GST collections in April 2022 suggest that the compliance is increasing. Moreover, inflation-induced higher taxes may help government to fund increased subsidy requirement,” said India Ratings chief economist DK Pant. In April, gross GST collections touched a record `1.68 trillion.
The nominal GDP growth assumed in the Budget is only 9.1% higher than the National Statistical Office’s second advance estimate for FY22. “We expect nominal GDP to expand by around 14% in FY23, which will help to moderate the size of the fiscal deficit relative to the nominal GDP for this year,” Nayar added.
On April 27, the Centre said the Nutrient Based Subsidy (NBS) rates for phosphatic and potassic (P&K) fertilisers for the Kharif season (April-September, 2022) will be `60,939 crore, as against `57,150 crore for the whole of last year. The increase in subsidy is meant to insulate farmers from the increases in the prices of di-ammonium phosphate (DAP) and other non-urea nutrients in the global markets. These soil nutrients are largely imported.
Increase in NBS rates for Kharif season, coupled with an expected rise in urea subsidy due to the elevated prices of both urea and LNG in the global markets could raise India’s fertiliser subsidy expenses in 2022-23 to over Rs 2.2 trillion in FY23 as against the BE of `1.05 trillion.
On March 26, the government had extended the free grains scheme Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) by six months till September 2022 at an additional cost of `80,000 crore, even though the Covid-19 pandemic has abated, This was not factored in the Budget for FY23.