Hurray, India reports a fiscal surplus in July 2022

For the month of July 2022, India reported a revenue surplus and a fiscal surplus. Of course, on a cumulative basis, the Indian economy is still on a fiscal deficit and is broadly on target to achieve fiscal deficit of 6.4% of GDP for the full year. However, this fiscal surplus for the month of July is special because it comes after a gap of 28 months. A fiscal surplus was last seen in the month of March 2020, and even that is not comparable due to COVID pandemic. For July 2022, fiscal surplus was Rs11,040 crore and revenue surplus Rs42,509 crore.

For the first four months of FY23 ended July 2022, the fiscal deficit in rupee terms was about 20.5% of the budget estimate for FY23. This is lower yoy compared to 21.3% in the comparable 4-month period ended June 2021.The surplus in the fiscal account was achieved due to higher net tax revenues and tapering of revenue expenditure. However, the centre ensured that the capital allocations were not negatively impacted even as curbs were put on revenue spending. This reduced the fiscal gap without impacting long term output.

Let us focus on the expenditure side on how the government has emphasized capital spending while cutting down on revenue spending. The capital spending for the month of July 2022 doubled yoy to Rs33,606 crore. For the first 4 months of FY23, the total capital spending was up 62% yoy at Rs2.09 trillion. However, since the revenue spending was down by 14% in the month of July 2022, it led to a 2% fall in overall spending, which resulted in the surplus for July 2022. Revenue spending for FY23 till date was up by 5% YOY.

For the first four months of FY23, the net tax revenues grew at a robust clip of 26% in contrast to the budgeted growth of 6%. That means, the final tax revenues should do much better than the full year tax revenue target of Rs19.35 trillion. In the first four months of FY23 the net tax revenues (net of devolvement to the states) had already touched 34.4% of the budget estimate for the full year FY23. That means, if the tempo is maintained, then the next tax revenue could get closer Rs21 trillion and exceed the BE by Rs1.70 trillion. 

The government, while budgeting for the current year has preferred to err on the side of caution. Hence, the eventual revenue outcome is likely to be much better than the budget estimates due to low revenue buoyancy assumed. Also, the budget had assumed much lower levels of GDP, but the actual growth has shown a lot more resilience. This is despite higher fertilizer subsidy and lower revenues due to cut in excise on petrol and diesel. July 2022 may be a signal that Indian fiscal may be much more comfortable in FY23.