As the finance ministry prepares to hold consultations with various ministries from Monday to firm up revised estimates of the Budget for FY23, it will step up focus on the prudent use of funds by departments to ensure that an anticipated growth slowdown in the second half of this fiscal is not hampered further by undue fiscal stinginess.
In the first half of this fiscal, given the strong external headwinds, the government laid emphasis on keeping a lid on wasteful revenue spending, generating savings wherever feasible and nudging states to release funds to agencies implementing several schemes.
Now, the focus is being shifted from saving for a rainy day to ensuring more prudent and effective spending, an official source told FE.
“When resources are limited, they must be used for more productive purposes and at a more opportune time, and that will be the focus,” he said. He was responding to a query on the possibility of a slowdown in tax mop-up in the second half. “So, there will be even stricter monitoring of expenditure, especially revenue expenditure now.”
As growth is expected to slow down further in the second half amid the external headwinds and interest rate tightening, the government wanted to preserve its fiscal fire power in the first half, said the official. The Centre’s fiscal deficit, therefore, hit just 32.6% of the FY23 target until August. While it’s slightly higher than the deficit of 31.1% recorded a year ago, spending in the first half of last fiscal was hampered by the second Covid wave.
The World Bank has slashed its FY23 growth forecast for India to just 6.5% from 7.5% predicted in June. On Friday, chief economic advisor V Anantha Nageswaran stated that India might have to live with a sub-7% growth in the near term.
Thanks to a spike in commodity prices in the wake of the Ukraine war and its bid to ensure food security to vulnerable sections, the government has taken on itself extra burden of over Rs 2.4 trillion (mostly for food and fertiliser subsidy) this fiscal. Moreover, about Rs 20,000 crore may be provided additionally for LPG subsidy. According to an ICRA estimate, the government may overshoot its budgeted FY23 fiscal deficit target of Rs 5.42 trillion (or 6.4% of GDP) by Rs 1 trillion.
The government, however, aims to control fiscal deficit within the target of 6.4% of GDP for FY23, said the official quoted above. This means the Centre is unlikely to adopt any fiscally expansionary policy in the second half, despite growth concerns.
Meanwhile, the Centre’s total expenditure shrank by 3% on year in August, as revenue spending dropped by 4% whereas capital expenditure rose only marginally by 1%. In fact, revenue spending in the first five months of this fiscal contracted 3% from a year before.
While the year-on-year growth in capex still remains high at 47% as against a required rate of 27% to meet annual target, capital spending has averaged at around `50,000 crore per month in the first five months, lower than the required monthly average of Rs 62,500 crore to meet the FY23 BE. However, top finance ministry sources have already asserted that the capex won’t be trimmed and the FY23 target will be met.
The Centre’s tax receipts have slowed considerably in August with gross post-refunds collections for the month coming in at Rs 1.51 trillion, down 8% from the year-ago period.
Nevertheless, in a bid to calm the bond market, the central government has decided to trim its gross market borrowing target for the second half of this fiscal by Rs 10,000 crore. However, official sources indicated that the government may tap the National Small Savings Funds more aggressively to finance a part of its fiscal deficit, should there be a pressing need for it.