India's April-November 2021 fiscal deficit narrows to 46% of full-year target

3 Jan 2022 , 11:06 AM

According to the government data released on Friday, India’s fiscal deficit at the end of November came at 46.2% of the FY22 budget estimate on the back of robust revenues. In actual terms, the deficit stood at Rs6.95 lakh crore at the end of November 2021 against the annual estimate of Rs15.06 lakh crore, as per data released by the Controller General of Accounts (CGA).

For the current financial year, the government expects the deficit at 6.8% of GDP or Rs15.06 lakh crore.

Ms. Aditi Nayar, Chief Economist, ICRA Limited said The GoI’s fiscal deficit compressed to just under Rs.7.0 trillion in April-November 2021 from Rs. 10.8 trillion in April-November 2020, with incremental revenues continuing to sharply outpace expenditure. Although the fiscal deficit upto November 2021 stood at only 46% of the budget estimate (BE) for the full year, the fading hopes of the disinvestment target being met, portend a deficit of Rs. 16.5-17.0 trillion in FY2022, overshooting the budgeted target.

While gross tax revenues displayed a robust growth of 18% in the month of November 2021, the higher release of central tax devolution to the states curtailed the net tax revenues, and thereby enlarged the fiscal deficit for that month.

Healthy buying ahead of the festive season appears to have sharply pushed up the GST compensation cess collections to an all-time high in November 2021.

Partly reflecting the duty relief extended on food items, the customs duty collections fell to a five-month low in November 2021.

The YoY halving in the capital spending of the GoI in the month of November 2021 is disappointing, even though it can partly be attributed to interruptions related to the festive season. After crossing a healthy Rs. 57,000 crore in September 2021, capital outlay has fallen sharply in the subsequent two months.

With a substantial 15% expansion in revenue expenditure offsetting the sharp contraction in capital spending, the total expenditure of the GoI has logged a rise of only 5% in Oct-Nov 2021, as opposed to the 21% uptick in Q2 FY2022. The subdued rise in the GoI’s spending so far does not augur well for the pace of GDP growth in Q3 FY2022, although expedited transfers to the states may provide some support.

Despite the recent cancellation, the 10-year G-sec yield has continued to breach 6.45%, partly reflecting the expectation of a new benchmark being issued shortly. As we move closer to policy normalisation by the MPC, we expect the 10-year yield to intermittently harden and eventually climb to as much as 6.7% in Q4 FY2022, especially if the Government of India has to raise additional funds in March 2022 to offset lower-than-budgeted disinvestment inflows.