However, when the fiscal year ends, the CGA puts out the annual data with a lag of 2 months. Therefore, on the last day of May 2023 the CGA published the fiscal deficit data for FY23 full fiscal year as well as for the month of April 2023; the first month of FY24. Our focus would largely be on the FY23 fiscal deficit data with a cursory glance at the April 2023 fiscal deficit data.
Government did better than expected on fiscal deficit in FY23
For the full fiscal year FY23, the total fiscal deficit ended at 98.7% of the original target, which is appreciable in a year that was racked by global and domestic headwinds. In fact, if you compare the eventual fiscal deficit in absolute terms at Rs17.33 trillion, it is Rs22,188 crore lower than the revised target for fiscal deficit for FY23. The eventual fiscal deficit as a share of GDP for FY23 stood at 6.32% compared to the target of 6.4% in the Union Budget. This was also partially helped by the sharp revival in Q4 GDP growth to 6.1%, which led FY23 GDP growth for the full year to 7.2% (nearly 20 bps better than the government estimate). As a result, the fiscal deficit, and the revenue deficit for FY23 were within target.
More than the absolute figure of fiscal deficit or the share of fiscal deficit as percentage of GDP, this also bodes well for the future trajectory of fiscal deficit. Union Budget 2023-24 had pegged the fiscal deficit target for FY24, sharply lower at 5.9%. That would have largely predicated on the government achieving the fiscal deficit target of 6.4% for FY23; and the government has actually done better. Let us now take a granular look into the break-up of revenues and expenditure of the government for FY23.
How did the government revenues pan out in FY23?
With FY23 data fully in place, we have a full picture of how the revenues panned out in the year. Clearly, revenue flows in FY23 have been driven by robust direct tax and indirect tax flows. Here are key takeaways on the revenue front.
To sum it up, the government has done better than expected on tax revenues and non-tax revenues, although disinvestments fell short of expectations, amid tough market conditions.
Tracking government expenditure dot plot for FY23
India has traditionally been a country that has run a deficit; at a fiscal level and at revenue level as expenditures consistently exceeded revenue levels. That gap was met by borrowings (fiscal deficit). Let us first look at government spending in FY23.
To sum up the spending story, despite the budgetary constraints, the government did not allow the capex commitments to get affected. Subsidy spending on food and fertilizers is what needs to be watched out for.
An interesting story of deficits in FY23
India runs deficits at multiple levels. It runs a revenue deficit since the revenue inflows are not sufficient to meet the revenue outflows. Hence some borrowings go towards meeting the revenue gap of the government too. Here is a sneak peek at the 3 most critical deficits.
To sum it up, the fiscal deficit, revenue deficit and the effective revenue deficit were below the FY23 targets of 6.4%, 3.9% and 2.8% respectively.
How was the fiscal deficit funded in FY23?
The challenge with fiscal deficit is that it has to be funded (typically with borrowings) so that the budget is balanced. Out of the 17.33 trillion fiscal deficits achieved in FY23, domestic financing accounted for a whopping Rs16.96 trillion while international financing was just about Rs0.37 trillion. Out of the Rs16.96 trillion of domestic financing, market borrowings account for Rs11.62 trillion, while another Rs3.96 trillion was via small savings, provident funds, and other national savings schemes.
Looking at April 2023 and beyond into FY24
Apart from the fiscal deficit data for FY23, the CGA also announced the revenue, spending, and deficit progress for the first month of FY24. As of the close of April 2023, revenue receipts were 6.5% of full year budget while total expenditure was 6.8%. The economy has already traversed 7.5% of the full year fiscal deficit target of Rs17.87 trillion in April itself. The big question is whether the government can meet its target of 5.9% fiscal deficit for FY24? RBI has nearly tripled its surplus transfer to the government to Rs87,416 crore for FY24. While growth in tax revenues is likely to flatten, collections are still likely to remain robust. The billion dollar question is; how much can the government keep expenditure under check, especially with the central elections coming up in mid-2024?
Related Tags
Invest wise with Expert advice
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Capital Services Support WhatsApp Number
+91 9892691696
IIFL Capital Services Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
ARN NO : 47791 (AMFI Registered Mutual Fund Distributor)
This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.