Fiscal deficit at 18-yr low of 31.1% BE till August
This is despite expenditure rising in August after falling in previous month
The Centre’s fiscal deficit as a proportion of the Budget Estimates (BE) fell to an 18-year low of 31.1 per cent in the first five months this fiscal year.
This was despite the fact that expenditure rose in August after falling in the previous month on a year-onyear basis.
In absolute terms too, the gap between the Centre’s expenditure and receipts compressed to ~4.7 trillion during April-august 2021-22 from ~8.7 trillion in the corresponding period of the previous year. It was lower than the ~5.5 trillion in the corresponding pre-covid period of 2019-20.
The decline in the deficit can be attributed to a 114 per cent rise in revenue receipts amid a cautious 2 per cent increase in expenditure until August of the current fiscal year.
However, the pace of expansion in revenue receipts moderated from 194 per cent a month ago because the base normalised with the progressive economic recovery last year as well as the inflows of the Reserve Bank of India’s (RBI’S) surplus during August 2020, said Aditi Nayar, chief economist at ICRA, said.
“Encouragingly, both revenue and capital spending saw a healthy increase in August 2021, more than offsetting the contraction seen in July 2021,” she said.
Nevertheless, the Centre’s revenue expenditure recorded a mild 2 per cent growth rate in July-august 2021, which suggests that government final consumption expenditure may weigh upon GDP growth in Q2 FY22, while the robust 31 per cent expansion in capital expenditure in this two-month period will support growth in gross fixed capital formation.
“The healthy expansion in the Union government’s gross tax revenues in the first half relative to the pre-covid level suggests that the upturn will sustain in the second half as well, even though a normalising base may dampen the pace of growth. We expect the Goi’s gross tax revenues to exceed the FY22 BE by at least ~2 trillion,” Nayar said.
Besides, the transfer of the surplus by the RBI to the Centre was around ~50,000 crore higher than budgeted.
Moreover, there could be modest inflows from the National Monetisation Pipeline (NMP). However, following the package announced by the government for the telecom sector, Nayar assessed the inflows from this sector into the nontax revenues to be limited to ~280 billion, trailing the budgeted ~540 billion for FY22.
The government has, meanwhile, lifted the cap from expenditure. As such, expenditure for September, the details of which will be available next month end, is likely to show a high pace of growth. With the expected rise in fertiliser subsidies and allocations under the Mahatma Gandhi National Rural Employment Guarantee Act, the Centre’s expenditure can exceed the BE of ~27.9 trillion this fiscal year.
Even then, the Centre’s fiscal deficit is likely to be lower than budgeted, depending on the disinvestment receipts. Disinvestment has yielded just ~12,000 crore against the target of ~1.05 trillion. In this respect, the LIC IPO could fill much of the gap. Another ~15,000-20,000 crore could come from Air India disinvestment, which is the process.