The federal Indian government’s fiscal deficit or gap between expenditure and revenue for the April-October period stood at INR5.47trn or 36.3% of the budget estimates, according to a press release by the ministry of finance on Tuesday. This was helped by an increase in revenue income and lower capital and revenue spending, according to the government.
The fiscal deficit as a percentage of gross domestic product (GDP) was at a four-year low due to buoyant revenue growth which outpaced the rise in expenditure during the fiscal year.
The deficit was 6.4% of the size of the nation’s economy, the third-largest in Asia, during the first seven months of the current fiscal year ending March 2022. The print is lower than the government’s target for the year of 6.8%.
In the first seven months of the previous year, the deficit was wider at 119.7% of the economy as the government has brought forward spending to cope with the coronavirus outbreak since March 2020. The deficit before the pandemic was in the first seven months was 102.4% of the then budget estimate.
“While the massive 82% expansion in revenue receipts amidst the measured 10% rise in total expenditure has compressed the government’s fiscal deficit to a modest INR5.5trn in April-October 2021, languishing disinvestment proceeds pose a meaningful concern,” said Aditi Nayar, chief economist at ICRA Ratings in Mumbai.
“With the base normalising, the y-o-y (year-on-year) growth in the gross tax collections moderated to 16.5% in the month of October 2021, led by excise duty, corporate tax, and personal income tax,” added Nayar.
The government collected INR12.8trn from in total revenue, of which INR12.6trn was accrued from net tax revenue, and the balance as non-debt capital receipts. The tax collection in October was 68.1% of the budget estimates, almost double compared to last year’s budget levels. The non-tax revenue collection was 85% of the budgeted amount.
Oil prices helped surge in revenues
Revenue collections got a boost in the past couple of months after the economy came out of the pandemic restrictions. The surge in fuel prices, due to the rise in crude prices, provided a windfall for the government’s tax collection.
This helped Reliance Industries, the nation’s second-largest conglomerate to clock its highest ever net profit in the July-September period. Energy major Oil & Natural Gas Corporation recorded the highest ever quarterly profit by any Indian company in the same period.
India’s Chief Economic Adviser K V Subramanian in the ministry of finance said that the deficit will remain within the target by the end of the financial because of the policy initiatives and reforms initiated by the government.
The fiscal deficit may slip in November as the government announced a cut in road and infrastructure cess component of the excise duty on fuel in November.
“At this stage, I can say confidently that we should be able to achieve that fiscal deficit number. Any shortfalls that might happen on the disinvestment side will also be accompanied by positive surprises that have happened on tax revenue,” said Subramanian on Tuesday.
The course of the government’s fiscal deficit path will be determined by the amount of funds raised from the planned share sales in state-run companies during the year. Of the INR1.75trn it aims to raise for the current financial year, it has met only 5.4% of the target. Later in the year, it will get INR180bn from the sale of the country’s flag-bearer airline to the Tata conglomerate.
The government also plans to meet the target from an initial stake sale in Life Insurance Corporation of India, the nation’s largest life insurer. It has appointed merchant bankers for the process of the initial public offering, said to be of unprecedented size.
Also in the works for this year is a stake sale in Bharat Petroleum Corporation, the nation’s third-largest retail fuel seller.
The revenue expenditures as a proportion of the budget estimates are lower by 5.7% than the pre-pandemic level, data released by the Controller General of Accounts for the April-October period showed. The capital expenditure was lower by 13.8% in the period year ago and accounted for 45.7% of the target for this year.
The extension of the benefits of the free food scheme till March 2022 will cost the state INR530bn and widen the deficit later in the year.
“The central government’s finances continue to benefit from buoyant tax realisations. The fiscal deficit was contained at 36.3% of the budget estimate, even while expenditure picked up. The multi-year low fiscal deficit ratio can be attributed to robust revenue growth, outpacing expenditure rise during the first half of the fiscal,” said Madan Sabnavis, chief economist at CARE Ratings.
“Capital expenditure at 45.7% of the target also showed an encouraging trend in line with the government’s focus on asset creation,” he added.
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