Revenue beat, fiscal math neat: IIFL Capital Services

4 Nov 2022 , 11:22 AM

Here are the key findings:

·         Overall fiscal looks comfortably placed, since strong tax collection trends of FY22 continue into H1FY23 as well
·         Additional spends over the budget announced by Centre should be more than offset by tax collections beat
·         On capex, while Centre has started on a very strong footing, states need to accelerate
·         The budgeted deficits and market borrowings can be beaten.
·         Fiscal consolidation is well underway.

Centre’s fiscal strong from tax collection beat (H1FY23)

Gross taxes in H1 have sprinted at 18% on a year-on-year basis. In comparison, FY23 budgeted estimate was only 2% over FY22 actuals. Devolution to states have been strong, in line with commitment to strengthen states for accelerating their capex. Focus on capex continues (50% year-on-year versus 27% budgeted) with Roads, Railways and Telecom seeing higher share. Revex grew by 6% year-on-year versus flat budgeted (increased spending on fertilizers and PDS).

Additional tax revenues cover for additional major spends

Considering H1 collections and extrapolating conservatively (considering higher share in H2), analysts at IIFL Capital Services see FY23 gross taxes at Rs31 trillion versus Rs27.6 trillion budgeted (Rs3.4 trillion beat). This should comfortably cover for Rs2.6 trillion of major additional spends announced for free food grain-scheme extension, fertilizer subsidy, grant to OMCs, etc.

Add states fiscal beat and borrowings should be lower

For 19 major states for which consistent data till August is available, headline revenue receipt has grown 29% year-on-year, while revex and capex have grown 17.5% and 9.9% respectively. Bihar is the sole revenue fall state. Centre had already lowered its borrowing target for FY23 by Rs100 billion in H2 borrowing calendar release (in FY22 they had borrowed Rs750 billion less than budget). State government has been borrowing less than calendar in H1FY23, and also, as compared to H1FY22. Going ahead, state borrowings might pick up as they accelerate capex. But even so, expect benign conditions for interest rates.