FISCAL DEFICIT SETTLES AT 9.2% OF GDP IN FY21

Higher revenue receipts help keep deficit within revised target of 9.5%

The Union government’s fiscal deficit for financial year 2020-21 settled at 9.2 per cent of gross domestic product, marginally below the revised target of 9.5 per cent. This came on the back of better-than-expected revenue receipts with expenditure broadly at the level targeted.

The Union government’s fiscal deficit for financial year 202021 (FY21) settled at 9.2 per cent of gross domestic product (GDP), marginally below the revised target of 9.5 per cent. This came on the back of better-than-expected revenue receipts with expenditure staying broadly at the level targeted in the Revised Estimates (RE) of the Budget.

In absolute terms, the fiscal deficit was ~18.21 trillion, about ~27,194 crore lower than the projected ~18.48 trillion, according to the provisional estimates released by Controller General of Accounts. The fiscal deficit has been arrived at based on provisional estimates for FY21 GDP of ~197.46 trillion.

The Centre had revised its fiscal deficit target in the Budget from 3.5 per cent to 9.5 per cent because of increased expenditure on various schemes it announced to tide over the Covid-19 pandemic, and a sharp shortfall in revenue receipts (both tax and non-tax).

The government’s revenue receipts were ~16.32 trillion, about 5 per cent higher than ~15.55 trillion projected in the RE. Tax revenue was 6 per cent higher at ~14.24 trillion, aided by an increase in excise and Customs duty. Revenue from excise duty jumped 63 per cent year-on-year (YOY) to ~3.89 trillion, while mop-up from Customs duty increased over 23 per cent to ~1.35 trillion. Total receipts, including non-debt capital receipts, stood at ~16.89 trillion.

The total expenditure in FY21– marred by the first wave of Covid-19– was ~35.11 trillion, as against an estimated ~34.5 trillion. Although, total expenditure was higher by around ~61,000 crore, capital expenditure was cut by ~13,568 crore to ~4.24 trillion. Revenue expenditure was 2.5 per cent higher the RE at ~30.86 trillion.

The higher-than-anticipated tax revenues helped curtail the deficit modestly below the revised target, and will come as a relief to the bond markets, said Aditi Nayar, chief economist at ICRA. Revenue expenditure exceeded the FY21 RE on account of the backended release of food subsidies, she said. Food subsidy overshot the FY21 RE by 24.3 per cent or ~1 trillion, which corresponds to prepayment of the Food Corporation of India’s liabilities in the last fiscal that had earlier been planned to be discharged in FY22, Nayar said. “This suggests a cushion of ~1 trillion in FY22 within the budgeted level of expenditure, which will help to absorb the already announced costs related to free food grain and fertiliser subsidy, as well as the expected enhancement in the MGNREGA allocation that may be needed following the second surge,” Nayar said.

Capex recorded a healthy level, and a robust 66 per cent year-on-year growth, given the low base because of the nationwide lockdown that had curtailed activity in April 2020, Nayar said.

The Controller General of Accounts (CGA) has also released data for April 2021, and the total expenditure was ~2.26 trillion as against ~3.07 trillion a year ago. Capital expenditure was ~47,126 crore. Total receipts during the month were ~1.48 trillion.

Madan Sabnavis, chief economist at CARE Ratings, said in FY22, there will be pressures on tax revenue because of lockdowns, while non-tax revenue will be higher because of the Reserve Bank of India’s transfer of around ~99,000 crore.