Core manufacturing grows, but fiscal deficit widens

BENGALURU: Growth in the eight infrastructure sectors of the economy touched a 13-month high in May on the back of robust performance by almost all key sectors, amplified by the low base of the previous year.

The sectors—coal, crude, natural gas, refinery products, fertilisers, cement, steel, and electricity—expanded by 18.1% in May compared to 9.3% in April, data released by the ministry of commerce and industry showed on Thursday.

All sectors other than crude oil and natural gas posted double-digit growth. With the eight core industries holding a 40.27% weight in the Index of Industrial Production (IIP), the performance raised prospects of robust industrial growth.

Meanwhile, the Centre’s fiscal deficit nearly tripled in May on the back of a sharp decline in the surplus transferred by the Reserve Bank of India (RBI) to the Union government and an uptick in revenue expenditure. The fiscal deficit widened to 12.5% of the full year’s budget estimates in the first two months of 2022-23.

The gap between the government’s revenue and expenditure at ₹2.03 lakh crore during April and May is 65% higher than the corresponding period last year, data by the controller general of accounts released on Thursday showed. The deficit for May at ₹1.29 lakh crore is 190% higher than the same month last year.

Economists pointed to risks to the fiscal deficit target of ₹16.6 lakh crore (6.4% of GDP) for FY23 that they said emanate from the revenue losses on account of excise duty cuts, lower-than-budgeted transfer of the RBI’s surplus, and the need for additional spending on food, fertiliser and LPG subsidies. But they said higherthan-expected nominal GDP, albeit due to high inflation, may help.

The Union government contained the fiscal deficit for 2021-22 to 6.7% of GDP, better than the 6.9% estimated in the budget, largely on the back of higher-than-expected revenue and nominal GDP growth.

Revenue receipts in the April-May period at ₹3.56 lakh crore are merely 2% higher than last year, largely on account of a 57.6% decline in non-tax revenue. The revenue receipts have touched 16.2% of the full year’s target.

“We expect a large part of the higher-than-budgeted subsidies and loss related to the excise duty cut to be absorbed by higher-than-estimated nonexcise taxes, limiting the extent of the overshoot in the government’s fiscal deficit in FY2023 to ₹1 trillion above the budget estimate, even if there are no expenditure savings. Moreover, a higher nominal GDP vis-à-vis the budget estimate is likely to contain the expected fiscal deficit at 6.5% of GDP, only slightly exceeding the budgeted 6.4% of GDP,” said Aditi Nayar, chief economist, ICRA Ltd.