High capital expenditure coupled with lower growth in tax collection widened fiscal deficit during the first three months (April-June) of fiscal year 2023-24 to a little over 25 per cent of the annual target of ₹17.87-lakh crore, data made public by the Controller General of Accounts on Monday showed. The fiscal deficit for the corresponding period of the previous fiscal was 21 per cent.

The Road Ministry laid the path for spending more than 1/4th of allocated total budget under capital expenditure during this period. FY24 Budget has provided ₹10.5-lakh crore for capex. Data for the first three months showed that all the Central government Ministries and Departments together spent over ₹2.78-lakh crore in the first quarter against ₹1.75-lakh crore during the corresponding period of the last fiscal. Various research estimates put capital expenditure multipliers to be 1.5-3 times larger than revenue expenditure.

Out of over ₹2.78-lakh crore capital expenditure, Road & Highway Ministry alone accounted for nearly ₹1-lakh crore, while Railway contributed over ₹78,000 crore. Transfer to States reached ₹30,000 crore. Capital outlay on Defence services and urban housing too saw a good growth.

Meanwhile, overall accounts showed that the Centre received nearly ₹6-lakh crore which is around 22 per cent of Budget Estimate. This included net tax revenue of over ₹4.33-lakh crore, around ₹1.55-lakh crore of non-tax revenue and over ₹10,000 crore of non-debt capital receipts. Over ₹2.36-lakh crore transferred to State governments as devolution of share of taxes by Centre during April-June period.

Fiscal deficit

Total expenditure was over ₹10.5-lakh crore. With higher capital expenditure and higher devolution, fiscal deficit (difference between income and expenditure) surged to around ₹4.5-lakh crore , which is nearly 25 per cent of Budget Estimate. The deficit during first three months of last fiscal was ₹3.5-lakh crore or around 21 per cent of Budget Estimate.

Aditi Nayar, Chief Economist with ICRA, said with fiscal concerns appearing limited and the MPC unlikely to raise policy rates in the upcoming policy review, despite the anticipated food item-led surge in the July 2023 CPI inflation, she expects the 10-year G-sec to range between 7-7.2 per cent in the near term.

Additional allocations

Higher than budgeted dividend surplus transfer of over ₹87,000 crore from the RBI is likely to provide some cushion to meet any undershooting in other revenues streams including disinvestment or potential overshooting in expenses, relative to respective BE, such as MGNREGA. In the four months of FY24, more than 70 per cent of the budgeted amount or ₹0.45-lakh crore (up to July 28) has already been spent, indicating that additional allocations may be made through the supplementary demand for grants. 

“ICRA estimates the outgo under MNREGA in FY24 to exceed the BE by ₹25,000-30,000 crore. It also expects the fertilizer budgetary allocation for FY24 to remain adequate,” Nayar said.