Centre’s fiscal deficit touches 45.6% of Budget target till October

The Centre’s fiscal deficit touched 45.6 per cent of the Budget target in the first seven months of the current financial year, higher than 36.3 per cent in the corresponding period of the last year.

With the GDP numbers out, the deficit stood at 4.7 per cent of GDP in the first six months of FY23.

Experts are certain that the deficit — a gap between the government’s expenditure and revenues — will overshoot in the current financial year by up to Rs 1 trillion. However, according to per cent of GDP, it may not surpass the Budget Estimates of 6.4 per cent or slow only slight slippage as the nominal GDP may overshoot the Budget assumption by up to Rs 22 trillion.

“Given that GDP in nominal terms would be higher than expected about Rs 272-280 trillion as against the assumed Rs 258 trillion in the Budget, we do believe that under ceteris paribus conditions, an additional Rs 1 trillion deficit would be absorbed quite seamlessly at the targeted ratio of 6.4 per cent,” Bank of Baroda chief economist Madan Sabnavis said.

There may not be a slippage in the worst case of more than 0.2-0.3 per cent though there are very good chances of the budgeted amount being achieved, he said.

ICRA chief economist Aditi Nayar said taking into account the estimated additional expenditure that is likely in FY23, the overshoot in the fiscal deficit may be a modest Rs 1 trillion, given the considerable upside seen in non-excise tax revenues as well as savings expected under other expenditure heads.

“The fiscal deficit in FY2023 is unlikely to exceed the budgeted 6.4 per cent of GDP, on a higher nominal GDP,” she said.

Madan attributed the higher fiscal deficit in the first seven months of the current financial year compared to the corresponding month of the previous year to expenditure incurred on food and fertiliser subsidies.

The budgetary allocation for fertiliser has almost been exhausted and hence the additional allocation will be used for the second part of the year.

There is space left for food subsidy as only Rs 1.35 trillion of Rs 2.13 trillion has been spent so far. The expense on PM Kisan has also been slow as only half the budget that has been allotted.

While the government’s net tax revenues (post-devolution to states) reported a healthy growth of 11 per cent, the 14 per cent contraction in non-tax revenues, combined with the 10 per cent rise in revenue expenditure, and the robust 62 per cent expansion in capex, widened the fiscal deficit to Rs 7.6 trillion in April-Oct FY23 from Rs 5.5 trillion in the first seven months of FY22.