India’s Apr-Nov fiscal deficit widens to 58.9% of full year target

For the first 8 months of fiscal year FY23, the fiscal deficit has already touched 58.9% of the full year target. Here are some key points that you should know about where India stands on the fiscal deficit for FY23.

1. The fiscal deficit number is announced by the Controller General of Accounts (CGA) with a lag of 1 month. So, the fiscal deficit update for November and the cumulative for FY23 up to November will be published on the last working day of December.
    

2. For the first 8 months of FY23, the fiscal deficit of the central government stood at 58.9% of the full-year target. This is much higher than the 46.2% of the respective projection achieved in the same period last fiscal year. That is largely because the government has been aggressive on spending this year, especially on capex. Remember, capex has grown 87% on a yoy basis in the April to November period, although revenue spending growth was curtailed at 15% in the period. |
    

3. For the first 8 months of FY23 ending November 2022, the tax collections of the central government grew at a moderate 8% while non-tax revenues actually fell by 11%. This was largely on account of much smaller transfers from the RBI and a fairly tepid performance on the disinvestment front.
    

4. The positive traction was seen in gross tax revenue collections. For the first 8 months to November 2022, gross tax revenues were up 15.5% at Rs17.8 trillion. Net tax revenues were sharply lower due to a spike in refunds during the last couple of months. The central government appears to be on track to exceed Budget estimates for tax collections in FY23.
    

5. Now we come to the fiscal deficit as percentage of GDP. The Budget 2022 had pegged fiscal deficit at 6.4% of GDP. However, subsequently the finance minister had admitted that the actual fiscal deficit could spill over. Now it looks like the government may eventually manage to keep the fiscal deficit within the limits of 6.4%, despite higher outlays in this year for fertilizer and food subsidies and a sharp spike in capex spending.
    

6. Fiscal deficit in absolute terms is sharply higher in the current year. For instance, for the April to November period, the central fiscal deficit stood at Rs9.78 trillion as compared to Rs6.95 trillion in the year ago period. However, one concern could be that economists are expecting that the strong revenue collection growth could slow down in the remaining months of FY23 due to lower real growth and lower inflation. The government, for now, remains confident of financing its higher food and fertilizer subsidy bill without bothering the fiscal deficit.
    

7. What about the spending aspect for the fiscal year FY23? The incremental spending has been tapering and the government is trying to keep its spending in check to avoid any negative fallouts. For instance, for November 2022, the total expenditure increased 21% as compared to the whopping 59% growth in October 2022. However, with higher tax revenue collection, the central government is likely to persist with its spending program.
    

8. In the month of November 2022, the monthly capex fell sharply to Rs38,099 crore compared to a more imposing Rs66,125 crore in October 2022. However, October may have been an exceptional month as the jump was driven by a spike in capital transfers to states under the interest free capex loan scheme.

The moral of the story is that the fiscal deficit percentage of total this year is much higher than last year, but that is understandable. The focus for now will be to keep fiscal deficit reined in at 6.4% for FY23 and give a much lower trajectory for FY24. That would not only boost confidence of the global investors but also force the rating agencies to look at the Indian economy more favourably.