The Centre’s fiscal deficit was modestly higher at 36% of the budget estimate in the first five months of the current financial year compared with 32.6% of the respective target in the year-ago period.
However, latest numbers from the Controller General of Accounts allayed concerns about government finances, with tax revenues clocking robust growth during August, largely due to a spike in direct tax receipts.
Fiscal deficit is budgeted to decline to 5.9% of the gross domestic product in FY24, from 6.4% in FY23.
While net tax revenues expanded by 15% in April-August of FY24, elevated growth in non-tax revenues continued with 80% growth on the back of the RBI dividend.
On the expenditure side, capex was robust with a 48% annual expansion during the first five months of FY24 while revenue expenditure saw a 14% rise.
Gross tax collections (before devolution) expanded by a healthy 17% on year in April-August FY24, with a near-doubling in the flows in August 2023 on an annual basis, led by direct taxes.
While tax devolution in August 2023 was in line with the previous month, it was lower in annual terms as two installments had been released in August 2022. This led to a sharp increase in net tax revenues at Rs 2.2 trillion, a multi-fold increase from the muted Rs 0.3 trillion in August 2022.
Revenue expenditure rose by a modest 7% to Rs 2.3 trillion in the month of August 2023, whereas capex expanded by 30%, aided by a low base, to Rs 0.57 trillion in August 2023 compared with Rs 0.44 trillion in August 2022.
“Overall, we see limited fiscal concerns at this stage, as corroborated by the unchanged market borrowing numbers for H2 FY2024, relative to the amount indicated in the Budget Estimates,” Rating agency Icra chief economist Aditi Nayar said.
The Centre’s expenditure on major subsidies — food, fertiliser and fuel — rose 32% on year to Rs 1.8 trillion in April-August of FY24, mainly due to higher outgo on account of food and nutrient-based subsidies.
To meet the FY24 BE, the Centre has to release Rs 6.4 trillion in tax devolution to the states in the next seven months, which is nearly the same as the amount devolved in Sept-March in FY23 as per Icra’s calculations. This would contain the incremental fiscal deficit in some of the ensuing months, Nayar added.
Given the larger surplus receipts from the RBI and likely healthy profits of state-run entities, the Centre’s total dividend receipts could exceed the budget target by around Rs 60,000 crore in FY24, according to an FE analysis.
RBI’s surplus transfer to the Centre rose 188% on year to Rs 87,416 crore in FY24 (for accounting year FY23), which was very close to Rs 91,000 crore estimated from dividend receipts from the RBI, public sector banks and financial institutions (Rs 48,000 crore) and the CPSEs in FY24.