India’s fiscal deficit likely to fall short of budgeted figure

 







India’s fiscal deficit for FY21 may be a little less than the budgeted 9.5% of gross domestic product (GDP), with both revenue and expenditure expected to be higher than anticipated, according to the finance ministry.

“Revenue is significantly higher than the revised estimates (RE) for FY21 while expenditure is also a bit higher than RE. The fiscal deficit is likely to be slightly lower than budgeted for FY21," a finance ministry official said, under the condition of anonymity.

The fiscal position of the central government has witnessed an improvement in the second half of FY21 because of a revival in economic activity. Provisional figures for indirect tax collections for FY21 show that the net revenue collection stands at ₹10.71 trillion, which is 108.2% of the RE, and has registered a growth of 12.3% over the preceding year.

Goods and services tax (GST) collections of the Centre during FY21 stand at ₹5.48 trillion. This is 106% of RE but 8.5% lower than the last year’s collection of ₹5.99 trillion.

In the second half of FY21, GST collections registered a good growth and exceeded ₹1 trillion in each of the six months because of economic recovery during this period. The provisional figures of net direct tax collections for FY21 stand at ₹9.45 trillion, 104.5% of the RE.

Fiscal deficit in the first 11 months of FY21 stood at 76% of the RE, according to data released by the Controller General of Accounts, which is likely to release data for March by end of May.

The government has the headroom to release a massive ₹6 trillion as revenue expenditure for March, said Aditi Nayar, chief economist at ICRA Ratings. “Nearly 40% of this headroom is on account of subsidies, which we expect will be broadly in line with the FY21 RE. Nevertheless, we do expect the government’s revenue spending to fall short of the FY21 revised estimate by ₹70,000-90,000 crore, on account of non-interest, non-subsidy spending. Based on the recent trends, we expect the Centre’s capital expenditure in FY21 to be in line with the RE," she said.

The fiscal deficit will climb sharply in the final month of FY21, with substantial headroom left in terms of the food subsidy amount that was yet to be disbursed at end-February, she said. “Regardless, we anticipate the Centre’s fiscal deficit to trail the FY21 RE by ₹1.3-1.5 trillion, based on our expectation of a modest upside to the tax revenues and undershooting of its non-interest non-subsidy revenue expenditure. Accordingly, we forecast the fiscal deficit in FY21 at ₹17-17.2 trillion," she said. The finance ministry has factored in ₹18.5 trillion for fiscal deficit in FY21.

However, rating agencies expect fiscal slippage in FY22 compared to the budgeted 6.8% of GDP. Fitch Ratings last week said while it does not expect the government to significantly expand spending beyond what has been budgeted, the risk remains that a prolonged health crisis will take a bigger toll on revenue collection than currently expected, resulting in a larger central fiscal deficit.

We have revised our forecast for the Indian central government deficit to 8.3% of GDP in FY22 from 8% previously. This raises our forecast further from the government’s 6.8% deficit projection for FY22 made in the February Union budget. The main driver of our deficit forecast revision is a downward revision to our outlook for revenue, given that the flare-up in covid-19 cases in India and containment measures in place will hamper India’s economic recovery, which will have a negative impact on fiscal revenues," the rating agency said.
A query sent to the finance ministry remained unanswered till the time of going to the press

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