The Centre’s fiscal deficit came in at 55% of the budget estimate (BE) in the first nine months of the current financial year, compared with 59.8% of the respective target in the year-ago period, the data released by the Controller General of Accounts showed on Wednesday.
This increased the possibility of the government meeting the fiscal deficit target of 5.9% of the GDP for FY24 in the interim Budget to be presented today. Last year, the Cenre had met the deficit target of 6.4%.
While net tax revenues rose by 11.2% on year in April-December 2023, in line with the required growth rate of 11% to achieve the budget estimate of Rs 17.3 trillion, non-tax revenues expanded by 46% to Rs 3.1 trillion (required rate 5%) on the back of the robust RBI dividends.
However, the pace of rise in tax receipts slowed a bit in recent months– net tax receipts were up 15% in April-September. Despite a lower nominal GDP size (8.9% as per first advance estimate), as against 10.5% the budget factored in, analysts are of the view that the fiscal deficit target of 5.9% of GDP will likely be met due to revenue performance and a likely shortfall in capital expenditure.
In December 2023, capex more than doubled on-year to Rs 87,985 crore, offsetting the tepid performance in the previous two months. The Centre’s capex expanded by 37.5% in April-December FY24, marginally higher than the required growth rate to meet the FY24 target of Rs 10 trillion. However, the capex achievement could fall short of the target due to likely lower utilisation by states from a special capex loan facility of Rs 1.3 trillion and a reduction in capital infusion into state-run oil firms.
“ICRA expects the government of India’s capex to undershoot the FY24 BE by around Rs 0.75 trillion, which still implies a robust YoY growth of around 26%,” Icra chief economist Aditi Nayar said.
As the Centre has front-loaded tax devolution by giving two extra monthly instalments –in June and December—the next tax receipt growth will accelerate to some extent in the January-March quarter of the current fiscal, with relatively lower transfers to the states.
“Setting aside the additional devolution to the states, we estimate that net tax revenues will exceed the FY24 BE by a modest Rs 0.3 trillion. This is equivalent to only 50% of the estimated upside in GTR as the excise undershooting would be restricted to the GoI and not shared with the states,” Nayar said.
Overall, revenue receipts are projected to exceed the FY24 BE by around Rs 0.5 trillion, implying a growth of about 13% over FY23. Icra has projected the Centre’s gross tax revenues to exceed the FY24 BE by around Rs 0.6 trillion, led by direct taxes and Central GST inflows, amidst an undershooting in other indirect taxes such as excise duty.
The Centre’s tax devolution to the states rose to Rs 7.5 trillion during April-December 2023, 22.6% higher than Rs 6.1 trillion transferred during the year-ago period. To meet the FY24 BE (Rs 10.2 trillion), the Centre has to release Rs 2.7 trillion to the states during Q4 FY2024, which is a sharp 19% lower than the amount devolved in Q4 FY23 as per Icra’s calculations (Rs 3.4 trillion).
“Based on our assessment of the gross tax revenues, the central tax devolution would need to exceed the FY24BE by approximately Rs 0.3 trillion,” Nayar said. The Centre’s fiscal deficit may end up a tad lower at 5.8% than the budget estimate for the current financial year due to buoyant revenues and the deficit target may be pegged around 5.3% for the next financial year, international investment firm Goldman Sachs said recently.
Revenue expenditure appears likely to mildly overshoot the FY24 BE of Rs 23.8 trillion, on account of a rise in major subsidies such as food and fertiliser as well as extra spending on the job guarantee programme. Icra currently projects the Centre’s total expenditure to exceed the FY24 BE of Rs 45.03 trillion by around a marginal Rs 5,000 crore.