India Economy News: Centered on Strong Fiscal Base, H1 Deficit at 37.3% FY23 BE

The Center’s fiscal position remained comfortable at the end of the first half of FY23, as strong tax collection helped offset the increased burden of fertilizer and food subsidies, according to data released Friday.

The budget deficit at the end of September stood at 37.3% of the budget estimate for FY23, slightly higher than 35% a year earlier.

In absolute terms, the budget deficit, the excess of expenditure over income financed by borrowing, stood at 6.19 lakh crore at the end of September. It was ₹5.3 lakh crore in the first six months of FY22.

The budget deficit for FY23 is estimated at ₹16.6 lakh crore or 6.4% of GDP.

Experts see only marginal slippage from the target. This should help reduce the pressure on interest rates in a context of increasing demand for credit.

“Taking into account the possibility that additional spending will be partially offset by higher revenue realizations and no shortfall in divestment proceeds, we expect the fiscal deficit to be slightly higher at 6.5% of GDP in fiscal year 23,” said Rajani Sinha, Chief Economist, CARE Ratings.

The Centre’s total revenue at the end of the first half of FY23 stood at ₹12.03 lakh crore, or 52.7% of total budgeted revenue.

This included ₹10.11 crore of tax revenue, ₹1.57 crore of non-tax revenue and ₹34,187 crore of non-debt capital revenue.

Gross tax collection increased 17.6% from April to September for FY23 compared to the previous year, driven by strong corporate tax growth (21.6%), income tax (25.7%) and central tax on goods and services (28.3%).

Net taxes increased 9.9% from the previous year due to a strong 44.6% increase in the transfer from central taxes to the states.

Despite increased fiscal decentralization and reduction in gasoline and diesel taxes, ICRA Chief Economist Aditi Nayar expects excess tax collection of around ₹2 lakh in in FY23 is over budget.

Strong tax collections have allowed the government to continue capital spending to support growth.

Total expenditure in the first half of FY23 was ₹18.23 lakh crore, 46.2% of the budget estimate.

Capital expenditure was ₹3.42 lakh crore in April–September 2022, up almost 50% from the previous year.

India Ratings expects strong growth in revenue collection to continue in the coming months. She does not see “the financing of additional expenses due to the three-month extension of the PMGKAY, the increase in the fertilizer subsidy or any other unforeseen expense” destabilizing the budgetary arithmetic.

The Center has so far transferred ₹3.76 lakh crore to the states as a share of taxes, which is ₹1.15 lakh crore higher than the previous year.


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