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.

Against the full year total revenue target of Rs23.48 trillion, the central government has achieved Rs23.84 trillion of revenues as of the end FY23. That is, nearly 101.5% of full year revenue target has been achieved as of the close of FY23.
For full year FY23, the target for net tax revenues (net of refunds and devolvement) has been pegged at Rs20.87 trillion, of which tax revenues of Rs20.97 trillion has been achieved as of the close of FY23, showing a success ratio of 100.5%, which is not surprising after the upbeat performance of direct and indirect tax flows.
Net revenues as mentioned above comprise of Corporate Taxes, Personal Income Taxes, central goods & services tax (CGST), GST compensation cess, customs duty on select imports and excise duty on non-GST products like petrol, diesel, and liquor.
For the FY23, the target for non-tax revenue stood at Rs2.62 trillion of which the centre achieved Rs2.86 trillion (109.3%) as of end of February 2023. This was on the back of higher than expected interest receipts and dividend receipts in the year.
On the subject of non-debt capital receipts, the government had set a target of Rs83,500 crore but achieved just 86% of the target at Rs72,187 crore. This was largely on account of disinvestment receipts at just Rs35,343 crore for the year against the full year disinvestment target of Rs50,000 crore.

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.

Total expenditure, comprising of revenue expenditure and capital expenditure, was targeted at Rs41.87 trillion for the full year FY23. As of the end of FY23, the total expenditure stood at Rs41.89 trillion, or tad over 100% of the full year target. Despite the demands, it has kept expenditure within the budgeted limits.
Revenue expenditure, which was targeted at Rs34.59 trillion for FY23 has seen total spending to the tune of Rs34.53 trillion as of the end of FY23. That is 99.8% of full year target. Government has gone slow on non-essential revenue spending, but that was the best way to protect capital spending needs of the economy.
Out of the revenue spending, interest payment target for FY23 stands at Rs9.41 trillion of which Rs9.28 trillion was paid out in FY23. Among the other major items of revenue spending in the year were food subsidies, fertilizer subsidies, defence maintenance and social security payments towards pensions and government salaries.
Capital spending for the full year FY23 is targeted at Rs7.28 trillion of which the government has achieved capex of Rs7.36 trillion for FY23. One of the guiding themes of this government in FY23 has been to protect the capital spending, even if it meant setting tighter limits on revenue spending. That has ensured productive growth.

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.

The fiscal deficit (budget deficit) for the full year FY23 has been pegged at Rs17.55 trillion and as of the end of FY23, the fiscal deficit for the year stands at Rs17.33 trillion. In other words, full year fiscal deficit for FY23 closed at 6.32% against the 6.4% target.
On revenue deficit, the annual target was Rs11.11 trillion of revenue deficit. For FY23, final revenue deficit stood at 96.2% of target at Rs10.69 trillion, largely due to controls on revenue spending. The revenue to fiscal deficit ratio is also under control at 63.3%.
Finally, we come to primary deficit, which is the fiscal deficit excluding interest costs. That was targeted for FY23 at Rs8.15 trillion, but closed the year lower at Rs8.05 crore.

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?

Fiscal deficit touches 21.2% of full year target as of June 2022

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