Coresectors growth up; deficitwidens

Infra sectors touch 4-month high, led by a pick-up in refinery products, steel, power

India’s fiscal deficit widened by 40% in February from the preceding month as the Centre shared an unprecedented ₹2.42 lakh crore worth of taxes with states, buoyed by higher revenue collections.

With that, the gap between the Centre’s revenue and expenditure touched 82.7% of the full year’s estimates in the 11 months to February, suggesting that the government may be on course to meet the revised fiscal deficit target of 6.9% of gross domestic product for the year ended March 31. The Centre’s budget deficit at ₹13.16 lakh crore in the fiscal year till February was 6.4% less than a year earlier, data released by the Controller General of Accounts on Thursday showed. However, it’s a sharp increase from the ₹9.6 lakh crore budget gap seen in the April-january period.

Meanwhile, government data showed a pick-up in industrial activity, with the eight-core infrastructure sectors growing 5.8% in February, the fastest in four months.

With tax collections remaining robust, the Centre’s devolution to states in February nearly doubled. The higher-than-usual revenue sharing widened the fiscal deficit to ₹3.2 lakh crore from ₹1.78 lakh crore in January. The tax devolution to states in February was higher than the average monthly transfer of ₹54,500 crore in April to January period.

Aditi Nayar, chief economist of ICRA Ltd, said that the massive release of central taxes to the states in February, by far the largest monthly release, precipitated a decline in the Centre’s cash balance.

“The close monitoring of receipts from taxes and duties to the Union government in FY22 has enabled the ministry of finance to release two additional instalments of central taxes (₹95,082 crore) over and above the regular 14 instalments devolved to states during a financial year,” finance minister Nirmala Sitharaman said in a tweet on Thursday. Further, a net additional amount of ₹43,168 crore was also released towards the settlement of dues of states’ share in central taxes payable from 1996-97 to 2017-18. With that, the Centre transferred ₹8.82 lakh crore to states before the close of FY22 compared to the revised estimates of ₹7.44 lakh crore. “Thus, total release to states exceeds the revised estimates of 2021-22 by ₹1.38 lakh crore,” the minister added. Nevertheless, economists believe that the Centre may be on course to achieve the fiscal deficit target amid strong revenue growth.

Revenue receipts of ₹17.9 lakh crore in the April-february period are 30.6% higher than last year, providing the government with additional spending power to fuel economic recovery. The revenue receipts have already touched 86.2% of the full-year target. The Centre’s direct tax collections have already exceeded the revised estimates for 2021-22 by a sharp ₹1.13 lakh crore amid robust advance tax mop-up in the last quarter of the fiscal, data released by the Central Board of Direct Taxes had shown earlier this month.

The total expenditure during this period rose 11.7% from a year earlier to ₹31.43 lakh crore. Capital expenditure, which is used to create assets and acts as a growth multiplier, rose 20% to ₹4.85 lakh crore and constituted 80.6% of the full-year estimate.

The eight infrastructure sectors of the economy grew at a four-month high in February, led by a pick-up in refinery products, steel and electricity. The sectors—coal, crude, natural gas, refinery products, fertilizers, cement, steel, and electricity— expanded by 5.8% in February from 4% in January, as per data released by the ministry of commerce and industry. However, crude oil and fertilizers continued to post a contraction.

The eight core industries hold 40.27% weight in the Index of Industrial Production (IIP). The production of petroleum refinery products, the sector with the highest weightage (28.04%) in the index, increased by 8.8%.

Natural gas and coal output grew by 12.5% and 6.6%, respectively. Cement output growth slowed to 5% in February from 14.3% in January. Steel and electricity output grew by 5.7% and 4%, respectively.