What does the fiscal deficit number look like?
For the first quarter ended June 2021, the deficit in absolute terms stood at Rs274,245cr, which is 18.2% of the budget estimates. While revenues have been buoyant, the government has also gone a tad slow on the capital expenditure front. That has helped the fiscal deficit to remain under control. For the full year, the budget estimate of fiscal deficit is Rs15,06,812cr, which is 6.8% of GDP for the year. For FY21, the fiscal deficit was pegged at 9.5% of GDP, but ended the year at 9.3% of GDP.
How did the revenues and expenditure add up in Q1?
As per data put out by the Controller General of Accounts (CGA), the total receipts in the first quarter were to the tune of Rs5.47 trillion, which is 27.7% of the full year Budget Estimates of receipts. That is largely attributed to two factors, viz. the buoyancy in the direct and indirect tax revenues as well as the transfer of Rs1.02 trillion by the RBI as dividend for the fiscal year.
The total receipts of Rs5.47 trillion consisted of Rs4.12 trillion by way of taxes and Rs1.27 trillion by way of non-tax revenues (which is predominantly the RBI dividend paid to the government). In the previous year, the government had only received 6.8% of the receipts as per budget estimates till the end of Jun-21.
For the first quarter ended Jun-21, the total receipts stood at Rs5.47 trillion and total expenditure stood at Rs8.21 trillion resulting in the fiscal gap of Rs2.74 trillion. Some of the key heads of expenditure included Rs1.18 trillion transferred to states as devolution of share of taxes, Rs1.84 trillion paid as interest and Rs1 trillion given as subsidies. Another Rs1.12 trillion were payments towards the capital account.
Dissecting the fiscal deficit numbers for Jun-21 quarter
Here are some key points to keep in mind.
a) The net tax revenues of Rs4.12 trillion included gross tax collections of Rs5.39 trillion with Rs1.27 trillion representing refunds leaving a net tax revenue of Rs4.1 trillion.
b) The non-tax revenues 1.27 trillion consisted of interest, dividend and other fiscal and economic services. The biggest chunk of Rs1.02 trillion was the RBI dividend.
c) The budgeted interest payment for the full year is Rs8.10 trillion of which Rs1.84 trillion was paid in the Jun-21 quarter. More than half the amount was paid in June.
d) The revenue deficit in the first quarter stood at 14.9% of the full year budget. However, the revenue deficit for FY22 is budgeted at 62% of the fiscal deficit, which is slightly high.
e) The primary deficit for the first quarter was 12.9% of the full year budget estimates. Primary deficit is the fiscal deficit excluding the impact of interest payments.
How is the fiscal deficit being funded?
That is the million dollar question. Fiscal deficit is the budget gap and has to be funded. Fiscal deficit is a net figure so it has to actually fill a much bigger gap after also considering the investment outflows from India. Two major sources of funding the fiscal deficit are the government borrowings via G-Secs in the bond market and the borrowings by the government from the NSSO. Let us look at how these figures panned out.
If you look at market borrowings, against the full year target of Rs9.68 trillion, the government has already borrowed Rs3.47 trillion in the Jun-21 quarter, which is 36% of the total budgeted borrowings from the secondary bond markets. The other source of funding is borrowings from NSSO, where against the target of Rs3.92 trillion, the government has already used up Rs1.42 trillion or 36% of the budgeted estimates. What does this mean?
Funding the fiscal deficit is going to be the real challenge. Already, RBI has seen a number of bond issues devolving due to unattractive yields. That will remains the big challenge for the government as to how long it can rely on borrowings and what other sources it can tap.