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The Government managed to end the fiscal year 2020-21 with a fiscal deficit lower than the revised estimate as projected in the Budget, data presented by the Controller General of Accounts (CGA) revealed on Monday. This will give some relief to the bond market and interest rates in particular.
Fiscal deficit shows expenditure is higher than the revenue for the Government. Data shows fiscal deficit for FY21 touched a little over ₹18.21 lakh crore as against the revised estimate of over ₹18.48 lakh crore. In terms of percentage of GDP, the final number stands at 9.3 per cent as against 9.5 per cent as mentioned in the Budget.
Net tax collection exceeded the revised estimate by nearly 6 per cent, while expenditure was 1.8 per cent higher than the revised estimate. While food subsidy was 124 per cent of the RE, nutrient based fertiliser subsidy, urea subsidy and petroleum subsidy stood at 96 per cent, 95 per cent and 93 per cent respectively.
FCI liability
Aditi Nayar, Chief Economist at ICRA said one possible reason for food subsidy overshooting could be prepayment of the FCI’s (Food Corporation of India) liabilities, which was initially planned to be discharged in FY22. “This suggests a cushion of ₹1.0 trillion in FY2022 within the budgeted level of expenditure, which will help to absorb the already announced costs related to free food grain and fertiliser subsidy, as well as the expected enhancement in the MGNREGA allocation that may be needed following the second Covid surge,” she said.
Meanwhile, despite lower than revised estimate number, market borrowing was higher. The government hiked the borrowing target to over ₹12.73 lakh crore but ended up with over ₹13.19 lakh crore. However, the bond market has already discounted the increase. At the same time, tax collection is expected to be impacted on account of business disruptions and also impact on disinvestment activities might affect non-tax revenue.
“At this stage, there is a modest risk that the GoI’s fiscal deficit in FY2022 will be higher than budgeted (₹15.1 trillion), especially on account of shortfalls in disinvestment receipts, and higher-than budgeted expenditure. Accordingly, the space for a fiscal stimulus appears to be limited and would need to be carefully targeted,” Nayar said.
Deficit during April
Meanwhile, fiscal deficit during April was 5.2 per cent of the budgeted estimate as against 35 per cent during corresponding period of FY21. GST led tax collection boosted the overall receipt and it touched 7.5 per cent of the estimate while expenditure stood at 6.5 per cent.
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