India ends FY22 with lower than expected fiscal deficit

Fiscal deficit or the budget deficit for the full year FY22 was announced on the last day of May 2022. Interestingly, the improved tax collections in the last quarter of FY22 ensured that the eventual fiscal deficit in percentage terms was just 6.7% of GDP.

This is in contrast to 6.9% of GDP pegged in the Union Budget. The improved revenue flows into the government coffers ensured that there was a smaller gap to worry about.

The Controller General of Accounts (CGA) put out the full year FY22 fiscal deficit along with fiscal deficit as on April 2022. For FY22, the fiscal deficit in absolute terms stood at Rs.15,86,537 crore as against the budget target of Rs.15,91,089 crore fiscal deficit.

As a result, the fiscal deficit in percentage terms tapered from 6.9% of GDP to 6.7% of GDP. While the fall is not really material, it is surely a feel good factor for the markets overall. 

As per the estimates put out by the Controller General of Accounts (CGA), the tax receipts during the fiscal year FY22 stood at Rs.18.2 trillion. This is sharply higher than the revised estimates (RE) of Rs.17.65 trillion.
 

That was largely on account of higher GST and direct tax collections in the fourth quarter. However, even the total expenditure in the quarter was higher at Rs.37.94 trillion compared to the revised estimate (RE) of Rs.37.70 trillion.

In addition to presenting the fiscal deficit for the full year to the Parliament, the Controller General of Accounts (CGA) also informed the house that the revenue deficit (something like borrowing for your morning breakfast) at the end of FY22 stood at 4.37%. along with the full year FY22 fiscal deficit data, the Controller General of Accounts (CGA) also put out the fiscal deficit data for the month of April 2022, which came in at 4.5% of full year estimates.

Of course, one month is normally too short a period to judge the fiscal deficit trend and that becomes evident only by the end of the first quarter. The Controller General of Accounts (CGA) expects the fiscal deficit for the current financial year FY23 to touch 6.4% of GDP or approximately Rs16.61 trillion.

Normally, the higher fiscal deficit means higher borrowings since the government normally meets its fiscal gap through domestic borrowings.

The positive trend was on the revenue front. The total revenue collections, despite the weak divestment collections, stood at Rs.27 trillion against the budget estimate of 22 trillion.

The revenues were nearly 35% above the figure achieved in the previous year as per the data put out by the Controller General of Accounts (CGA). There has been all round growth in direct tax collections and indirect tax collections, especially in the form of GST.

The GST collections have picked up sharply with the pick up in the level of economic activity. However, there is more to it. There is also better compliance and use of technology for monitoring and identifying revenue gaps.

That has helped improve compliance and boosted GST revenues. In addition, the fiscal deficit also seems to have benefited from the lower allocations to capital spending in the previous financial year.

While the original estimate for fiscal deficit for FY23 was 6.4%, that has now been scaled up by 50 bps to 6.9% as the government is willing to draw out a blank cheque to contain inflation at all costs. That will be visible in the coming months.