The Centre’s fiscal deficit came in at 45% of the Budget Estimate (BE) in the first seven months of the current financial year compared with 45.6% of the respective target in the year-ago period, largely due to a 15% decline in capital and revenue expenditure in October.
In October 2023, capex declined by 15% year-on-year while revenue spending fell by 14% year-on-year.
The moderation in capex is an indication that the Centre’s FY24 capex may miss the Rs 10 trillion target by around Rs 0.5 trillion. Assembly elections and upcoming general elections may have slowed the tempo in capex after H1.
In H1FY24, capex grew by 43% but moderated to 34% in April-October as against a required rate of 36% to meet the Budget Estimate.
While net tax revenues rose by 11.2% year-on-year in April-October 2023 meeting the required growth rate of 11% to achieve the Budget Estimate, non-tax revenues expanded by 49% (required rate 5%) on the back of the robust RBI dividend.
In the first seven months of FY24, revenue expenditure growth moderated to 6.5% from 10% in H1, but continued to be on the higher side than the budgeted growth rate of 1.5%.
“After considering the additional economic cost towards the extension of free foodgrains under the NFSA for January-March 2024, the higher subsidy on LPG, the Nutrient Based Subsidy rates on P&K fertilisers for the ongoing rabi season, and the additional amount likely to be required for MGNREGS, we estimate spending to exceed the FY2024 BE by Rs 0.8-1.0 trillion,” Icra chief economist Aditi Nayar said.
“However, this sum could be matched by expenditure savings, which have ranged between an estimated Rs 1.1-2.3 trillion in recent years.
As a result, we foresee a low risk of the fiscal deficit target of 5.9% of GDP being breached.”
Icra’s baseline expectation is that direct taxes will surpass the FY24 Budget Estimate by Rs 0.85 trillion, a portion of which will be absorbed by lower-than-budgeted union excise duty collections, leaving a gross upside of around Rs 0.5 trillion.
“Setting aside the additional devolution to the states, we estimate that net tax revenues will exceed the FY24 BE by a modest `0.3 trillion.
“However, this will be offset by a similar shortfall in disinvestment proceeds,” she said.
