Fiscal deficit. Fiscal deficit for 2021-22 at 6.7 per cent, lower than budget and revised estimates

The government has managed to keep the fiscal deficit to 6.7 per cent during fiscal year 2021-22. This is 10 basis points lower than budget estimate and 20 basis points lower than revised estimate for the said fiscal.

Meanwhile, deficit in April during current fiscal (2022-23) touched 4.5 per cent of the budget estimate. Experts feel that deficit for the full fiscal could be higher than the estimate because of duty cuts.

FY22 accounts

Data show tax and non-tax revenue have been higher while capital expenditure has been lower which resulted in lower deficit than estimates. While net tax receipts were over ₹18.20-lakh crore against revised estimate of over ₹17.65- lakh crore. Similarly, non-tax revenue was ₹3.48-lakh crore as against revised estimate of ₹3.13-lakh crore. It is important to note here that last November, Central excise was cut in November, but even then Central excise collection is higher than preceding fiscal.

Though overall expenditure was little higher (₹37.94-lakh crore vs ₹37.70-lakh crore), capital expenditure was ₹5.92- lakh crore, less than revised estimate of over ₹6.01-lakh crore.

While presenting the Budget for FY23, Finance Minister Nirmala Sitharaman had said the revised fiscal deficit in FY22 was estimated at 6.9 per cent of GDP against 6.8 per cent projected in the Budget Estimates. Further, ”the fiscal deficit in FY23 is estimated at 6.4 per cent of GDP, which is consistent with the broad path of fiscal consolidation announced by me last year to reach a fiscal deficit level below 4.5 per cent by 2025-26,” she had said.

Fiscal in April’ 23

With a sharp 33 per cent growth in revenues and 9 per cent rise in revenue expenditure amid a robust 68 per cent expansion in capital spending, the government reported a rare revenue surplus and a fiscal deficit of ₹0.7-lakh crore in April, which was only mildly lower than the April 2021.

Aditi Nayar, Chief Economist with ICRA, feels there are several risks to the fiscal deficit target of ₹16.6-lakh crore for FY23, emanating from the revenue loss to the Centre on account of the excise duty cut, lower-than-budgeted transfer of the RBI’s surplus, and the need for additional spending on food, fertilizer and LPG subsidies through the year.

However, a large part of this would be offset by appreciably higher than budgeted taxes, limiting the extent of the overshoot in the fiscal deficit in FY23 to ₹1-lakh crore above the budget estimate, even if there are no expenditure savings. Moreover, a higher nominal GDP vis-à-vis the BE is likely to contain the expected fiscal deficit at 6.5 per cent, slightly exceeding the budgeted 6.4 per cent of GDP. 

“In our view, the rise in global interest rates, domestic monetary tightening and the renewed uptick in crude oil prices will lead to a hardening in the 10-year G-sec yield in the next few months, even though there is a limited likelihood of a sharp step up in the GoI’s dated borrowings for FY23. Pencilling in a repo rate of 5.15-5.5 per cent by September-end, we foresee the 10-year G-Sec yield to climb to as much as 8 per cent in the remainder of H1 FY2023. If the higher repo rate and G-Sec yields are mirrored by increased small savings rates, it may prevent the market borrowing programme from having to be enlarged appreciably,” she said.