India reports fiscal surplus in July 2022 after 28 months
- India Infoline News Service
- 02 Sep , 2022
- 9:21 AM
The month of July 2022 has been special for the central government in terms of the reported deficit numbers. In India we are used to perpetual deficits in the fiscal account and the revenue account. What is interesting is that in July 2022, there was a fiscal surplus and also a revenue surplus. The revenue account surplus for July 2022 was Rs42,509 crore while fiscal account surplus was Rs11,040 crore.
What is special is that the central government is reporting a fiscal account surplus for the first time since March 2020; even that was at the height of the pandemic. In July 2022, the turnaround to a fiscal and revenue surplus was triggered by a sharp spike in tax revenues and big cuts in revenue spending, even as capital spending has remained stable. This is despite higher fertilizer subsidies and lower excise on oil due to duty cuts.
For the first 4 months of FY23 ending July 2022, the fiscal deficit stood at 20.5% of full year Budgetary Estimates (BE). This was 21.2% as of June 2022 and the fall is due to the fiscal surplus. The current year fiscal deficit had been originally projected at 6.4% of GDP in the Union Budget. While it was expected to go up to around 6.9% due to higher spending to contain inflation, July gives hope that government may hold fiscal deficit at 6.4% for FY23.
Fiscal deficit trajectory for Apr-Jul FY23
The Controller General of Accounts (CGA) publishes the fiscal deficit data with a lag of 1 month i.e. data up to July 2022 was published on the last day of August 2022. For the first 4 months of FY23 (April to July 2022), the fiscal deficit in absolute terms stood at Rs340,831 crore. That translates into 20.5% of the budget estimates of fiscal deficit for FY23 at Rs16,61,196 crore.
The government has earlier hinted at the possibility that the fiscal deficit for FY23 could be higher by about 50 to 60 basis points. This was due to the aggressive fight against inflation, which normally entails duty cuts to check landed costs of commodities like ores and crude oil.
The compensating duties did not help much, but the government has benefited from stable tax revenues and planned cuts in revenue spending. The disinvestment targets at Rs65,000 for the full year are much lower than FY22 and even the RBI surplus transfer was just one-third of last year.
For FY23, the budget estimate of fiscal deficit is Rs16,61,196cr, or 6.4% of GDP as per the last Union Budget. At the current run rate; for the remaining 8 month the government has a fiscal deficit leeway of Rs13,20,365 crore. The fiscal and revenue surplus in July 2022 has halted the surge in fiscal deficit as a percentage of GDP and that is positive news.
A look at revenues and spends for Apr-Jul FY23
Total receipts up to July 2022 were to the tune of Rs7.86 trillion, which is already 34.4% of the full year estimated receipts and better than estimated. There has been a consistent build-up in revenues each month helped by direct and indirect tax collections. This has more than offset the lower flows from RBI transfers and from disinvestment of PSU. Also GST collections have now stabilized at a new normal of Rs1.45 trillion to Rs1.50 trillion a month. Despite headwinds in terms of global hawkishness, supply chain constraints and commodity inflation; revenue flows have not seen much of an impact and have been buoyant.
The FY23 total receipts of Rs7.86 trillion comprised of Rs6.66 trillion by way of taxes and Rs1.20 trillion by way of non-tax revenues. The non-tax revenues were largely accounted for by Rs0.90 trillion by way of dividends and profits (including the RBI surplus transfer) and another Rs0.30 trillion by way of disinvestment of 2.5% stake in LIC and other PSUs. RBI dividend to the government was just about one-third of last year.
For the 4 months ended July 2022, the total expenditure (revenue plus capital spending) stood at Rs11.26 trillion or 28.6% of the full year expenditure target for financial year FY23 pegged at Rs39.45 trillion. The total spending of Rs11.27 trillion includes Rs9.18 trillion of revenues expenditure and Rs2.09 trillion of capital expenditure. The biggest components of revenue spending in the first 4 months of FY23 were defence services, crop subsidies, fertilizer subsidies and food subsidies. The biggest capital outlays were in defence.
The story of deficits in Apr-Jul FY23
Here are some key takeaways from the build-up of the various deficits in FY23.
a) The net tax revenues of Rs6.66 trillion included gross tax collections of Rs8.69 trillion of which Rs2.03 trillion represents devolution of taxes to states and union territories.
b) The non-tax revenues have been dominated by the dividend and interest receipts as well as the inflows from the divestment of LIC stake
c) The budgeted interest payment for the full year is Rs9.41 trillion of which Rs2.84 trillion was paid till the end of July 2022, which is 30.2% of full year target.
d) Revenue deficit up to July 2022 stood at 16.4% of full year budget. Revenue deficit as a share of fiscal deficit has been sharply lower at 47.6% as of end July 2022
e) The primary deficit till July 2022 was 7.9% of full-year budget estimates. Primary deficit is fiscal deficit excluding interest payments.
In the four month period (Apr-Jul) of FY23, the big story was the surplus on the revenue account and fiscal account in July 2022. This is likely to make the journey to achieving 6.4% fiscal deficit much easier and avoiding spillage.
Government is doing a smart fiscal tightrope walk
In the Union Budget announced in February 2022, the markets had been impressed by the promise to contain fiscal deficit at 6.4% of GDP. The fight against inflation had briefly threatened to stretch the fiscal deficit back to 6.9% of GDP, but things appear to have turned around for the better. The revenues from taxes have been robust while the revenues from other sources have been estimated more conservatively.
That gives legroom for the government to ensure that fiscal deficit is reined in.
It is good to see the government showing urgency in cutting fiscal deficit without impacting growth-oriented spending. The month of July saw cuts in revenue spending even as capital spending has remained buoyant. Combined with robust revenues, this has created a sweet spot with a strong possibility of keeping fiscal deficit for FY23 in check. It is good to see the government using buoyant revenues to aggressively contain fiscal deficit. That remains the best way to reverse FPI outflows and impress rating agencies. As a promising emerging market, India just cannot afford to ignore these opinion makers.
What is special is that the central government is reporting a fiscal account surplus for the first time since March 2020; even that was at the height of the pandemic. In July 2022, the turnaround to a fiscal and revenue surplus was triggered by a sharp spike in tax revenues and big cuts in revenue spending, even as capital spending has remained stable. This is despite higher fertilizer subsidies and lower excise on oil due to duty cuts.
For the first 4 months of FY23 ending July 2022, the fiscal deficit stood at 20.5% of full year Budgetary Estimates (BE). This was 21.2% as of June 2022 and the fall is due to the fiscal surplus. The current year fiscal deficit had been originally projected at 6.4% of GDP in the Union Budget. While it was expected to go up to around 6.9% due to higher spending to contain inflation, July gives hope that government may hold fiscal deficit at 6.4% for FY23.
Fiscal deficit trajectory for Apr-Jul FY23
The Controller General of Accounts (CGA) publishes the fiscal deficit data with a lag of 1 month i.e. data up to July 2022 was published on the last day of August 2022. For the first 4 months of FY23 (April to July 2022), the fiscal deficit in absolute terms stood at Rs340,831 crore. That translates into 20.5% of the budget estimates of fiscal deficit for FY23 at Rs16,61,196 crore.
The government has earlier hinted at the possibility that the fiscal deficit for FY23 could be higher by about 50 to 60 basis points. This was due to the aggressive fight against inflation, which normally entails duty cuts to check landed costs of commodities like ores and crude oil.
The compensating duties did not help much, but the government has benefited from stable tax revenues and planned cuts in revenue spending. The disinvestment targets at Rs65,000 for the full year are much lower than FY22 and even the RBI surplus transfer was just one-third of last year.
For FY23, the budget estimate of fiscal deficit is Rs16,61,196cr, or 6.4% of GDP as per the last Union Budget. At the current run rate; for the remaining 8 month the government has a fiscal deficit leeway of Rs13,20,365 crore. The fiscal and revenue surplus in July 2022 has halted the surge in fiscal deficit as a percentage of GDP and that is positive news.
A look at revenues and spends for Apr-Jul FY23
Total receipts up to July 2022 were to the tune of Rs7.86 trillion, which is already 34.4% of the full year estimated receipts and better than estimated. There has been a consistent build-up in revenues each month helped by direct and indirect tax collections. This has more than offset the lower flows from RBI transfers and from disinvestment of PSU. Also GST collections have now stabilized at a new normal of Rs1.45 trillion to Rs1.50 trillion a month. Despite headwinds in terms of global hawkishness, supply chain constraints and commodity inflation; revenue flows have not seen much of an impact and have been buoyant.
The FY23 total receipts of Rs7.86 trillion comprised of Rs6.66 trillion by way of taxes and Rs1.20 trillion by way of non-tax revenues. The non-tax revenues were largely accounted for by Rs0.90 trillion by way of dividends and profits (including the RBI surplus transfer) and another Rs0.30 trillion by way of disinvestment of 2.5% stake in LIC and other PSUs. RBI dividend to the government was just about one-third of last year.
For the 4 months ended July 2022, the total expenditure (revenue plus capital spending) stood at Rs11.26 trillion or 28.6% of the full year expenditure target for financial year FY23 pegged at Rs39.45 trillion. The total spending of Rs11.27 trillion includes Rs9.18 trillion of revenues expenditure and Rs2.09 trillion of capital expenditure. The biggest components of revenue spending in the first 4 months of FY23 were defence services, crop subsidies, fertilizer subsidies and food subsidies. The biggest capital outlays were in defence.
The story of deficits in Apr-Jul FY23
Here are some key takeaways from the build-up of the various deficits in FY23.
a) The net tax revenues of Rs6.66 trillion included gross tax collections of Rs8.69 trillion of which Rs2.03 trillion represents devolution of taxes to states and union territories.
b) The non-tax revenues have been dominated by the dividend and interest receipts as well as the inflows from the divestment of LIC stake
c) The budgeted interest payment for the full year is Rs9.41 trillion of which Rs2.84 trillion was paid till the end of July 2022, which is 30.2% of full year target.
d) Revenue deficit up to July 2022 stood at 16.4% of full year budget. Revenue deficit as a share of fiscal deficit has been sharply lower at 47.6% as of end July 2022
e) The primary deficit till July 2022 was 7.9% of full-year budget estimates. Primary deficit is fiscal deficit excluding interest payments.
In the four month period (Apr-Jul) of FY23, the big story was the surplus on the revenue account and fiscal account in July 2022. This is likely to make the journey to achieving 6.4% fiscal deficit much easier and avoiding spillage.
Government is doing a smart fiscal tightrope walk
In the Union Budget announced in February 2022, the markets had been impressed by the promise to contain fiscal deficit at 6.4% of GDP. The fight against inflation had briefly threatened to stretch the fiscal deficit back to 6.9% of GDP, but things appear to have turned around for the better. The revenues from taxes have been robust while the revenues from other sources have been estimated more conservatively.
That gives legroom for the government to ensure that fiscal deficit is reined in.
It is good to see the government showing urgency in cutting fiscal deficit without impacting growth-oriented spending. The month of July saw cuts in revenue spending even as capital spending has remained buoyant. Combined with robust revenues, this has created a sweet spot with a strong possibility of keeping fiscal deficit for FY23 in check. It is good to see the government using buoyant revenues to aggressively contain fiscal deficit. That remains the best way to reverse FPI outflows and impress rating agencies. As a promising emerging market, India just cannot afford to ignore these opinion makers.
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Fiscal deficit as of August 2022 touches 32.6% of full year target
- India Infoline News Service
- 03 Oct , 2022
- 5:21 AM
If the month of July was special in that there was a revenue and fiscal surplus, it is back to a deficit in August on both the fiscal and the revenue account. Indian economy had reported a fiscal surplus and a revenue surplus in July 2022 after a gap of almost 28 months. For instance, in the month of July 2022, the revenue account surplus was Rs42,509 crore while fiscal account surplus was Rs11,040 crore.
The above surplus could be largely attributed to the fact that the government had delayed payment of tax refunds. This magnified the fiscal and current account and showed a surplus in July 2022. However, bulk of the refunds have been paid out in August 2022 and in September so the net tax figure has not grown so aggressively. This resulted in a fiscal deficit of Rs200,770 crore in August 2022, while revenue deficit stood at Rs158,520 crore.
For the first 5 months of FY23 ending August 2022, the fiscal deficit stood at 32.6% of full year fiscal deficit target as compared to just 20.5% of full year Budgetary Estimates (BE) as of the close of July 2022. The current year fiscal deficit had been projected at 6.4% of GDP in the Union Budget. In between, the government had hinted at the fiscal deficit for FY23 spiking to 6.9% of GDP. However, now the finance ministry is confident of flat to lower fiscal deficit for FY23, which is evident from a Rs10,000 reduction in H2-FY23 borrowing target.
How has the fiscal deficit panned out in FY23 so far?
The Controller General of Accounts (CGA) publishes the fiscal deficit data with a lag of 1 month i.e. data up to August 2022 was published on the last working day of September 2022. For the first 5 months of FY23 (April to August 2022), the fiscal deficit in absolute terms stood at Rs541,601 crore. That translates into 32.6% of the budget estimates of fiscal deficit for FY23 at Rs16,61,196 crore.
There were fears that the government may have to revise the fiscal deficit higher from 6.4% to about 6.9% due to its aggressive fight against inflation. Fiscal policy to control inflation includes cuts in import duties to cut input costs. That is also revenue constricting and that was putting the fiscal position in jeopardy. However, there have been several positives since.
For starters, the direct tax collections have been extremely robust across personal income taxes and corporate taxes. Secondly, the indirect taxes led by GST flows have been above Rs1.40 trillion a month on a consistent basis. Further, the government has also taken up sharp expenditure cuts in the last few months without impeding the capex, that is the key to long term growth. This combination has given the government confidence of holding fiscal deficit at around 6.4%, which is also evident from Rs10,000 crore lower borrowings. At the current run rate; for the remaining 7 month the government has a fiscal deficit leeway of Rs11,19,595 crore.
How money came in and went out in FY23
Total receipts up to August 2022 were to the tune of Rs8.48 trillion, which is already 37.2% of the full year estimated receipts. However, the net revenues in August have taken a hit on account of the heavy refund pay-outs. There has been a consistent build-up in revenues each month helped by direct and indirect tax collections. This has more than offset the lower flows from RBI transfers and from disinvestment of PSUs. Despite headwinds in terms of global hawkishness, supply chain constraints, recession fears and commodity inflation; revenue flows have been not only steady, but has also been buoyant.
The FY23 total receipts of Rs8.48 trillion comprised of Rs7.00 trillion by way of taxes and Rs1.48 trillion by way of non-tax revenues. Among the non-tax revenues the RBI dividend to the government for FY22 fell to 0.30 trillion from Rs0.99 trillion in FY21. The other major head was the flows from the disinvestment revenues, predominantly from the sale of 3% stake in LIC in May 2022. In fact, non-tax revenues are sharply lower on yoy basis.
For the 5 months ended August 2022, the total expenditure (revenue plus capital spending) stood at Rs13.90 trillion or 35.2% of the full year expenditure target for financial year FY23 pegged at Rs39.45 trillion. The total spending of Rs13.90 trillion includes Rs11.37 trillion of revenues expenditure and Rs2.53 trillion of capital expenditure. The biggest components of revenue spending in the first 5 months of FY23 were defence services, crop subsidies, fertilizer subsidies and food subsidies. The biggest capital outlays were in defence.
How the various deficits showed up in FY23?
Here are some key takeaways from the build-up of the various deficits in FY23.
Government is being prudent about fiscal deficit: and that is good
In the February 2022 Union Budget, the government had impressed the markets with its decision to peg fiscal deficit at 6.4%. Despite the pressures of higher inflation and the cost of the battle to control inflation, the fiscal deficit target is not being violated. Government is now in a position to further trim the fiscal deficit to closer to 4% of GDP in the next couple of years, if the robust revenues continue on the direct and indirect tax front.
What is gratifying is that the government is using its inordinately buoyant tax revenues to aggressively contain fiscal deficit. That remains the best way to reverse FPI outflows and impress rating agencies. As a promising emerging market, India just cannot afford to ignore these opinion makers. Centre has given the first signal of its seriousness to contain fiscal deficit by reducing the borrowing target for H2-FY23. Despite the disruption caused by COVID and the Ukraine war, India seems to be on target on fiscal deficit front.
The above surplus could be largely attributed to the fact that the government had delayed payment of tax refunds. This magnified the fiscal and current account and showed a surplus in July 2022. However, bulk of the refunds have been paid out in August 2022 and in September so the net tax figure has not grown so aggressively. This resulted in a fiscal deficit of Rs200,770 crore in August 2022, while revenue deficit stood at Rs158,520 crore.
For the first 5 months of FY23 ending August 2022, the fiscal deficit stood at 32.6% of full year fiscal deficit target as compared to just 20.5% of full year Budgetary Estimates (BE) as of the close of July 2022. The current year fiscal deficit had been projected at 6.4% of GDP in the Union Budget. In between, the government had hinted at the fiscal deficit for FY23 spiking to 6.9% of GDP. However, now the finance ministry is confident of flat to lower fiscal deficit for FY23, which is evident from a Rs10,000 reduction in H2-FY23 borrowing target.
How has the fiscal deficit panned out in FY23 so far?
The Controller General of Accounts (CGA) publishes the fiscal deficit data with a lag of 1 month i.e. data up to August 2022 was published on the last working day of September 2022. For the first 5 months of FY23 (April to August 2022), the fiscal deficit in absolute terms stood at Rs541,601 crore. That translates into 32.6% of the budget estimates of fiscal deficit for FY23 at Rs16,61,196 crore.
There were fears that the government may have to revise the fiscal deficit higher from 6.4% to about 6.9% due to its aggressive fight against inflation. Fiscal policy to control inflation includes cuts in import duties to cut input costs. That is also revenue constricting and that was putting the fiscal position in jeopardy. However, there have been several positives since.
For starters, the direct tax collections have been extremely robust across personal income taxes and corporate taxes. Secondly, the indirect taxes led by GST flows have been above Rs1.40 trillion a month on a consistent basis. Further, the government has also taken up sharp expenditure cuts in the last few months without impeding the capex, that is the key to long term growth. This combination has given the government confidence of holding fiscal deficit at around 6.4%, which is also evident from Rs10,000 crore lower borrowings. At the current run rate; for the remaining 7 month the government has a fiscal deficit leeway of Rs11,19,595 crore.
How money came in and went out in FY23
Total receipts up to August 2022 were to the tune of Rs8.48 trillion, which is already 37.2% of the full year estimated receipts. However, the net revenues in August have taken a hit on account of the heavy refund pay-outs. There has been a consistent build-up in revenues each month helped by direct and indirect tax collections. This has more than offset the lower flows from RBI transfers and from disinvestment of PSUs. Despite headwinds in terms of global hawkishness, supply chain constraints, recession fears and commodity inflation; revenue flows have been not only steady, but has also been buoyant.
The FY23 total receipts of Rs8.48 trillion comprised of Rs7.00 trillion by way of taxes and Rs1.48 trillion by way of non-tax revenues. Among the non-tax revenues the RBI dividend to the government for FY22 fell to 0.30 trillion from Rs0.99 trillion in FY21. The other major head was the flows from the disinvestment revenues, predominantly from the sale of 3% stake in LIC in May 2022. In fact, non-tax revenues are sharply lower on yoy basis.
For the 5 months ended August 2022, the total expenditure (revenue plus capital spending) stood at Rs13.90 trillion or 35.2% of the full year expenditure target for financial year FY23 pegged at Rs39.45 trillion. The total spending of Rs13.90 trillion includes Rs11.37 trillion of revenues expenditure and Rs2.53 trillion of capital expenditure. The biggest components of revenue spending in the first 5 months of FY23 were defence services, crop subsidies, fertilizer subsidies and food subsidies. The biggest capital outlays were in defence.
How the various deficits showed up in FY23?
Here are some key takeaways from the build-up of the various deficits in FY23.
- The net tax revenues of Rs7.00 trillion included gross tax collections of Rs10.21 trillion of which Rs3.21 trillion represents devolution of taxes to states and tax refunds.
- The non-tax revenues have been dominated by the dividend and interest receipts as well as the inflows from the divestment of LIC stake
- The budgeted interest payment for the full year is Rs9.41 trillion of which Rs3.39 trillion was paid till the end of August 2022, which is 36.0% of full year target.
- Revenue deficit up to August 2022 stood at 32.4% of full year budget. Revenue deficit as a share of fiscal deficit has spiked sharply to 59% as of August, from 46% last month.
- The primary deficit till August 2022 was 28.2% of full-year budget estimates. Primary deficit is fiscal deficit excluding interest payments.
Government is being prudent about fiscal deficit: and that is good
In the February 2022 Union Budget, the government had impressed the markets with its decision to peg fiscal deficit at 6.4%. Despite the pressures of higher inflation and the cost of the battle to control inflation, the fiscal deficit target is not being violated. Government is now in a position to further trim the fiscal deficit to closer to 4% of GDP in the next couple of years, if the robust revenues continue on the direct and indirect tax front.
What is gratifying is that the government is using its inordinately buoyant tax revenues to aggressively contain fiscal deficit. That remains the best way to reverse FPI outflows and impress rating agencies. As a promising emerging market, India just cannot afford to ignore these opinion makers. Centre has given the first signal of its seriousness to contain fiscal deficit by reducing the borrowing target for H2-FY23. Despite the disruption caused by COVID and the Ukraine war, India seems to be on target on fiscal deficit front.
H1FY23 Fiscal deficit at 37.3% of full year target on capex thrust
- India Infoline News Service
- 02 Nov , 2022
- 9:45 AM
In the month of July 2022, India had reported fiscal and revenue surplus after a gap of almost 28 months. However, this surplus was unlikely to be sustainable amidst rising government spending. That is the way it has panned out, although the revenue account is in a surplus in September 2022. After incremental fiscal deficit of Rs200,770 crore in August, the month of September 2022 saw fiscal deficit accretion of Rs78,428 crore.
That is the incremental monthly story and not the cumulative story. On a cumulative basis, total central fiscal deficit stood at Rs619,849 crore representing 37.3% of the total fiscal deficit for fiscal FY23 as per budget estimates. What is interesting about this growth in fiscal deficit in September 2022is that it was largely triggered by a spike in capex. For instance, total government capex for September 2022 stood at Rs90,561 crore.
How does this capex look like in relative terms? The September 2022 capex of Rs90,561 crore is 57.5% higher compared to the capex in September 2021. If you look at capex on a sequential basis, the capex for September 2022 at Rs90,561 crore is 107% higher than August 2022. This is also the highest capex recorded in any month in this fiscal. The impact was evident in the latest core sector numbers which saw the output of steel and cement grow aggressively on a yoy basis and also on a high frequency MOM basis.
Here is a look at the fiscal deficit picture for FY23
The Controller General of Accounts (CGA) publishes the fiscal deficit data with a lag of 1 month i.e. data up to September 2022 was published on the last working day of October 2022. For the first 6 months of FY23 (April to September 2022), the fiscal deficit in absolute terms stood at Rs619,849 crore. That translates into 37.3% of the budget estimates of fiscal deficit for FY23 at Rs16,61,196 crore.
There were fears that the government may have to revise the fiscal deficit higher from 6.4% to about 6.9% due to its aggressive fight against inflation. That does not look necessary now. Fiscal policy to control inflation included cuts in import duties to cut input costs. That is also revenue constricting and that was putting the fiscal position in jeopardy. However, there have been several positives since, which may actually help rein in fiscal deficit in FY23.
For starters, the direct tax collections have been extremely robust, especially in corporate taxes, followed by personal income taxes. Secondly, the indirect taxes led by GST flows have been above Rs1.45 trillion a month on a consistent basis; even crossing Rs1.50 trillion for the latest month. Further, the government has taken up sharp expenditure cuts in the last few months without impeding capex. In fact, government doubled capex on MOM basis and grew it 57.5% on a yoy basis in September 2022. Government may, therefore, not only protect the 6.4% fiscal deficit commitment, but even better it. It still has leg room left, with Rs10,41,347 crore of fiscal deficit still available in the remaining six months.
How the rupee came in and how it went out in FY23
Total receipts up to September 2022 were to the tune of Rs12.04 trillion, which is already 52.7% of the full year estimated receipts. However, the net revenues in September has again taken a hit on account of the heavy refund pay-outs. There has been a consistent build-up in revenues each month helped by direct and indirect tax collections. This has more than offset the lower flows from RBI transfers and from disinvestment of PSUs. One cannot ignore headwinds like global hawkishness, supply chain constraints, recession fears and commodity inflation. However, revenue flows have not only been steady, but also robust.
The FY23 total receipts of Rs12.04 trillion comprised of Rs10.12 trillion by way of taxes and Rs1.58 trillion by way of non-tax revenues. Among the non-tax revenues the RBI dividend to the government for FY22 fell to 0.30 trillion from Rs0.99 trillion in FY21, which was a major disappointment for the government. The other major head was flows from disinvestment revenues, predominantly from the sale of 3% stake in LIC in May 2022. IDBI sale is likely to happen only in the next fiscal. Non-tax revenues are lower on yoy basis.
For the 6 months ended September 2022, the total expenditure (revenue plus capital spending) stood at Rs18.24 trillion or 46.2% of the full year expenditure target for financial year FY23 pegged at Rs39.45 trillion. The total spending of Rs18.24 trillion includes Rs14.81 trillion of revenues expenditure and Rs3.43 trillion of capital expenditure. The biggest components of revenue spending in the first 6 months of FY23 were defence services, crop subsidies, fertilizer subsidies and food subsidies. The biggest capital outlays were in defence, but the Rs90,000 crore accretion to capital spending in September 2022 is the good news.
Story of how the deficits panned out in FY23
Here are some key takeaways from the build-up of the various deficits in FY23.
Government is juggling fiscal deficit fairly effectively
In the February 2022 Union Budget, the government had impressed the markets with its decision to peg fiscal deficit at 6.4%. While this is still far from the FRBM targets, we need to factor in the impact of the pandemic. However, there are 3 things that emerge.
That is the incremental monthly story and not the cumulative story. On a cumulative basis, total central fiscal deficit stood at Rs619,849 crore representing 37.3% of the total fiscal deficit for fiscal FY23 as per budget estimates. What is interesting about this growth in fiscal deficit in September 2022is that it was largely triggered by a spike in capex. For instance, total government capex for September 2022 stood at Rs90,561 crore.
How does this capex look like in relative terms? The September 2022 capex of Rs90,561 crore is 57.5% higher compared to the capex in September 2021. If you look at capex on a sequential basis, the capex for September 2022 at Rs90,561 crore is 107% higher than August 2022. This is also the highest capex recorded in any month in this fiscal. The impact was evident in the latest core sector numbers which saw the output of steel and cement grow aggressively on a yoy basis and also on a high frequency MOM basis.
Here is a look at the fiscal deficit picture for FY23
The Controller General of Accounts (CGA) publishes the fiscal deficit data with a lag of 1 month i.e. data up to September 2022 was published on the last working day of October 2022. For the first 6 months of FY23 (April to September 2022), the fiscal deficit in absolute terms stood at Rs619,849 crore. That translates into 37.3% of the budget estimates of fiscal deficit for FY23 at Rs16,61,196 crore.
There were fears that the government may have to revise the fiscal deficit higher from 6.4% to about 6.9% due to its aggressive fight against inflation. That does not look necessary now. Fiscal policy to control inflation included cuts in import duties to cut input costs. That is also revenue constricting and that was putting the fiscal position in jeopardy. However, there have been several positives since, which may actually help rein in fiscal deficit in FY23.
For starters, the direct tax collections have been extremely robust, especially in corporate taxes, followed by personal income taxes. Secondly, the indirect taxes led by GST flows have been above Rs1.45 trillion a month on a consistent basis; even crossing Rs1.50 trillion for the latest month. Further, the government has taken up sharp expenditure cuts in the last few months without impeding capex. In fact, government doubled capex on MOM basis and grew it 57.5% on a yoy basis in September 2022. Government may, therefore, not only protect the 6.4% fiscal deficit commitment, but even better it. It still has leg room left, with Rs10,41,347 crore of fiscal deficit still available in the remaining six months.
How the rupee came in and how it went out in FY23
Total receipts up to September 2022 were to the tune of Rs12.04 trillion, which is already 52.7% of the full year estimated receipts. However, the net revenues in September has again taken a hit on account of the heavy refund pay-outs. There has been a consistent build-up in revenues each month helped by direct and indirect tax collections. This has more than offset the lower flows from RBI transfers and from disinvestment of PSUs. One cannot ignore headwinds like global hawkishness, supply chain constraints, recession fears and commodity inflation. However, revenue flows have not only been steady, but also robust.
The FY23 total receipts of Rs12.04 trillion comprised of Rs10.12 trillion by way of taxes and Rs1.58 trillion by way of non-tax revenues. Among the non-tax revenues the RBI dividend to the government for FY22 fell to 0.30 trillion from Rs0.99 trillion in FY21, which was a major disappointment for the government. The other major head was flows from disinvestment revenues, predominantly from the sale of 3% stake in LIC in May 2022. IDBI sale is likely to happen only in the next fiscal. Non-tax revenues are lower on yoy basis.
For the 6 months ended September 2022, the total expenditure (revenue plus capital spending) stood at Rs18.24 trillion or 46.2% of the full year expenditure target for financial year FY23 pegged at Rs39.45 trillion. The total spending of Rs18.24 trillion includes Rs14.81 trillion of revenues expenditure and Rs3.43 trillion of capital expenditure. The biggest components of revenue spending in the first 6 months of FY23 were defence services, crop subsidies, fertilizer subsidies and food subsidies. The biggest capital outlays were in defence, but the Rs90,000 crore accretion to capital spending in September 2022 is the good news.
Story of how the deficits panned out in FY23
Here are some key takeaways from the build-up of the various deficits in FY23.
- The net tax revenues of Rs10.12 trillion included gross tax collections of Rs13.92 trillion of which Rs3.80 trillion represents devolution of taxes to states and tax refunds.
- The non-tax revenues have been dominated by the dividend and interest receipts as well as the inflows from the divestment of LIC stake
- The budgeted interest payment for the full year is Rs9.41 trillion of which Rs4.37 trillion was paid till the end of September 2022, which is 46.4% of full year target.
- Revenue deficit up to September 2022 stood at 31.4% of full year budget due to a revenue surplus of Rs9,653 crore in September 2022, largely due to focus on capex. Revenue deficit as a share of fiscal deficit has fallen from 59% to 50.2% MOM.
- The primary deficit till September 2022 was 25.4% of full-year budget estimates. Primary deficit is fiscal deficit excluding interest payments.
Government is juggling fiscal deficit fairly effectively
In the February 2022 Union Budget, the government had impressed the markets with its decision to peg fiscal deficit at 6.4%. While this is still far from the FRBM targets, we need to factor in the impact of the pandemic. However, there are 3 things that emerge.
- The government has shown a bias for spending more of capex which shows why the revenue account is in surplus despite the fiscal deficit overall.
- Even in revenue spending, the government has increased its subsidy bills for food and fertilizers, which is value accretive from an income boost perspective.
- In the final analysis, the government may either meet the 6.4% fiscal deficit target or even better it. But it is likely to keep revenue deficit at under 50% of fiscal deficit.
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- 03 October, 2022 |
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The current year fiscal deficit had been projected at 6.4% of GDP in the Union Budget. In between, the government had hinted at the fiscal deficit for FY23 spiking to 6.9% of GDP.
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