The Centre’s extension of the free grains scheme for another three months will be funded through savings on revenues expenditures and will not lead to additional borrowings, a senior finance ministry official told FE. Despite the additional food subsidies and extra outgo expected on fertiliser and fuel subsidies, the official said, the fiscal deficit will likely be contained at the budgeted level of 6.4% of GDP.
A day after announcing the free ration scheme for the poor, which will cost exchequer Rs 44,762 crore (without factoring in open market sales of grains), the government on Thursday cut its market borrowing target for the current fiscal by Rs 10,000 crore. The finance ministry said the government will do total borrowing of Rs 5.92 trillion during H2FY23, including from issuance of its maiden Sovereign Green Bonds of Rs 16,000 crore.
Besides the extra tax collections, the government is banking on savings on revenues expenditures such as in centrally sponsored schemes and central sector schemes to provide for about Rs 2.75 trillion additional expenditure seen in subsidies in FY23. This includes Rs 1.25 trillion on account of Pradhan Mantri Garib Kalyan Ann Yojana (PMGKAY) for April-December 2022, Rs 1.3 trillion extra on fertiliser subsidies and an additional Rs 20,000 crore on LPG subsidies “These additional expenditures will be met through savings on revenue expenditures,” the official, quoted above, said.
The Centre has recently retrieved about Rs 40,000 crore lying with state treasuries for the last 2-3 years and these states were forced to release these funds to agencies implementing assorted Centrally Sponsored Schemes. In effect, the Centre has made savings of a similar amount from the current financial year’s allocation for these schemes.
The savings accrued in the bulk of the 49 centrally sponsored schemes including the national health mission and education mission. However, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MG-NREGS) may face a fund crunch and get disrupted unless the government increases the allocation for the popular scheme from the budgeted level soon. As much as 72% of the Rs 73,000 crore Budget allocation for the scheme has already been spent, the latest data from the rural development ministry showed. Of course, the finance ministry will assess the additional fund requirement during the revised estimate discussions next month.
On the other hand, the Centre will also make some savings on the Central Sector Schemes as it has asked the autonomous bodies/implementing bodies to either use or return the unutilised funds lying with them as on March 31, 2022, before seeking fresh funds from this year’s budget, officials said.
Of the total budget size of Rs 39.4 trillion for FY23, the Centre has allocated Rs 4.4 trillion for Centrally Sponsored Schemes and Rs 11.81 trillion for Central Sector Schemes. The revenue expenditure budget for FY23 is Rs 31.9 trillion.
Despite about Rs 1 trillion tax revenue loss due to a reduction in excise duty on petrol-diesel and import duties on select raw materials, the centre’s net tax revenues could exceed the FY23 budget target by about Rs 2 trillion due to buoyancy in direct taxes and goods and services taxes. On the non-taxes side, dividends from CPSEs could also exceed the budget target by Rs 10,000-20,000 crore in FY23.
In keeping with the focus on capex, the Centre invested Rs 2.09 trillion in April-July of the current fiscal, up 62% on the year. A senior official told FE recently the capex target of Rs 7.5 trillion will be achieved or exceeded in FY23.
“We expect the fiscal deficit to modestly overshoot the budgeted level, following the extension in PMGKAY for another three months,” rating agency Icra chief economist Aditi Nayar said. “We expect the size of the fiscal deficit overshoot to be limited to around Rs 1 trillion,” Nayar added. A higher than budgeted nominal GDP size will give some comfort to the fiscal deficit ratio though.