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ICRA expects the Government of India’s (GoI’s) fiscal deficit to print at ₹16.6-lakh crore or 7.1per centof the GDP in FY2022, overshooting the budgeted target of ₹15,06,812crore or 6.8 per cent due to a miss in the disinvestment target.
The Government had estimated ₹1.75-lakh crore as receipts from disinvestment and strategic sale of public sector units in FY22.
Aditi Nayar, Chief Economist, ICRA, noted that: “With a palpable buoyancy in tax collections, we expect the GoI’s gross tax receipts to overshoot the budgeted amount by a healthy ₹2.5-lakh crore in FY2022.”
However, the net tax revenue gains to GoI would be nullified by the expected large miss on receipts from disinvestment and back-ended spending, especially on those items that were included in the Second Supplementary Demand for Grants, such as food and fertiliser subsidies, export incentives/remissions under various export promotion schemes (such as Merchandise Exports from India and Rebate of State and Central Levies and Taxes), equity infusion into Air India Assets Holding Ltd, etc.
“Consequently, we expect the GoI’s fiscal deficit to print at ₹16.6 lakh crore in FY2022, exceeding the budgeted amount of ₹15.1 lakh crore,”Nayar said.
FY23 budget will face some constraints
She cautioned that the Union Budget for FY2023 will face some constraints owing to an expected slowdown in the growth in indirect taxes following the excise relief provided recently, and the moderation in nominal GDP growth to about 12.5 per cent from about 17.5 per cent expected in FY2022.
Besides, macro-economic uncertainty would linger on account of the potential emergence of new mutations and fresh waves of Covid-19, which may eventually necessitate additional spending by way of extension of free food grains scheme and higher spending on Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).
“Given this backdrop, the GoI’s ability to cement higher growth in direct taxes and garner disinvestment receipts would play a critical role in determining the extent of the fiscal consolidation that is feasible in FY2023,” Nayar said.
Notwithstanding the lingering uncertainty, ICRA believes that the Union Budget FY2023 should ring-fence the funds that can realistically be absorbed for capital expenditure and infrastructure spending.
“Such outlays will help fuel the investment cycle, create employment opportunities and improve domestic demand. At the same time, rationalising of Centrally-sponsored schemes and Central sector schemes would enhance fiscal space, and further improve the quality/efficiency of expenditure,”Nayar said.
In the base case(impact of current Covid wave limited to Q4 FY2022 and no fresh Covid wave in FY2023), ICRA pegged the GoI’s fiscal deficit in FY23 at ₹15.2-lakh crore or 5.8per centof GDP, with net Government Securities (G-Secs)issuance placed at ₹9.1-lakh crore.
In the adverse case(moderate Covid wave in FY2023), ICRA has projected the fiscal deficit at a higher ₹17.9- lakh crore(or 6.9 per cent of GDP), driven by two major outlays intended to bolster confidence amongst households, amidst lower indirect taxes and compressed disinvestment flows
“First, a likely distribution of free food grains for a period of six months under the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) could cost ₹90,000 crore, while spending on the MGNREGA to support the rural economy could necessitate an additional outlay of ₹30,000 crore over and above our baseline estimate,” the agency said.
General Govt fiscal deficit
With the State governments’ fiscal deficit projected at a relatively modest 3.3per centof GDP in FY2022, the General Government fiscal deficit (Centre and States combined) is estimated at about 10.4per centof the GDP, ICRA said.
“Although the planned ceasing of GST compensation could cause the state governments’ fiscal deficit to rise to the cap of 3.5per cent of the GSDP set by the Fifteenth Finance Commission, the General Government deficit would still compress to 9.3 per cent of the GDP in FY2023,” per the agency’s projections.
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