The Centre’s fiscal deficit in the June quarter came at 21.2% of the budget estimate (BE) for FY23, up from 18.2% of the corresponding target a year ago, as it maintained the pace of capital expenditure even as non-tax revenues dipped. However, it reined in revenue spending in the later part of the period, with overall expenditure growth declining from 23.7% on year in May to 5.4% in June.
According to data released by the Controller General of Accounts on Friday, the Centre’s fiscal deficit for April-June of FY23 stood at Rs 3.5 trillion, 28% higher than in the first three months of last fiscal.
The Centre has front-loaded capex in FY23 so far, leading to 57% year-on-year growth in the first quarter to Rs 1.75 trillion.
“The sustained double-digit growth in capex will help the economy at a time when the private investment is in wait-and-watch mode due to the monetary tightening across the globe and the uncertainty created by the Russia-Ukraine conflict. In fact, impact of government capex is getting reflected in the double digit year-on-year growth of various infrastructure sectors like steel, cement in Q1FY23,” said Sunil Sinha, Principal Economist at India Ratings.
Net tax revenues grew 22.6% in Q1FY23 over the same period last year as against the required rate of 6.3% to achieve the full year target of Rs 19.35 trillion. However, non-tax revenue contracted by 51.2% on year in the first three months of FY23, reflecting much lower receipts in dividends and revenues from other economic services.
The government has been maintaining that the fiscal deficit target of 6.4% of the GDP would be met. Elevated levels of inflation in the economy will boost the nominal GDP which in turn would help the government exceed its tax collection targets of FY23 by a decent margin.
“The windfall tax on crude oil and other export duties along with the buoyancy in taxes will give adequate headroom/fiscal space to the union government to undertake higher expenditure on the subsidy and cover up the loss of revenue due to cut in excise duties on petrol/diesel. On the whole, the fiscal deficit in FY23 to come in the range of 6.2%-6.4% of GDP,” Sinha said.
The Centre’s revenue expenditure grew 8.8% on year to Rs 7.73 trillion as against the budget target of 0.2% dip on year for FY23 as the expenditures such as on interest payments remained robust.
The Centre is keen on revenue expenditure compression in FY23, given the strong external headwinds, and wants to generate some savings on this front. This is particularly important at a time when the Centre intends to realise its record budgetary capital expenditure target of Rs 7.5 trillion, betting big on its high-multiplier effect to spur growth. The finance ministry has asked various departments to avoid presenting new schemes that would warrant substantial revenue expenditure in FY23.