The Centre’s fiscal deficit widened considerably to 59.8% of GDP in the first nine months of the current financial year, compared with 50.4% in the year-ago period, due to modest growth in net tax receipts, contraction in non-tax revenues and a mild rise in revenue expenditure.
Capital expenditure in December 2022 contracted by 64% on year at Rs 42,831 crore due to a highly unfavourable base.
However, capex rose 25% on year to Rs 4.9 trillion in April-December 2022.
The sharp decline in capex and a just 1% growth in revenue expenditure led to a 16% decline in total expenditure in December 2022 to Rs 3.75 trillion.
“With a typical surge in receipts in the last quarter and a cushion provided by an assessed year-on-year decline in tax devolution, we expect the overshoot in the central government’s fiscal deficit to be limited to Rs 0.8 trillion relative to the FY23 BE, with the target of 6.4% of GDP likely to be met,” Icra chief economist Aditi Nayar said.
Growth in the gross tax revenues stood at a marginal 0.8% in December 2022, dampened by personal income tax and excise duty.
“We estimate that the amount that remains to be disbursed to the states in the last quarter, will be around Rs 1 trillion lower than the transfer of Rs 4.3 trillion in Q4 FY22, offering a cushion in the remainder of this year,” Nayar said.
The net tax receipts of the Centre have reached 80% of the FY23 BE in the first nine months, reinforcing Icra and other agencies’ estimate of a healthy overshoot relative to the budgeted level, largely on account of direct tax collections and GST inflows.
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While monthly capex inched up to Rs 42,831 crore in December 2022 from Rs 38,099 crore in November 2022, it paled in comparison to the outlay of Rs 1.18 trillion in December 2021, which had been boosted by the equity infusion into Air India.
The balance capital spending needed to meet the FY23 BE is 29% higher than the actual capex incurred in Q4 FY22.
A pickup in the states’ offtake of the interest-free capex loan scheme in Q4 FY23 will be crucial to ensure that the budgeted target is met, Nayar said.
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“We estimate the total spending in the current fiscal to exceed the Budget Estimate by Rs 2.3 trillion, lower than the net cash outgo announced in the first supplementary demand for grants (Rs. 3.3 trillion), after taking into account our expectations of expenditure savings by ministries/departments. This implies a modest YoY rise of 7% in total spending in Q4 FY23,” Nayar said.
