Finance Minister Nirmala Sitharaman is going to present the last full-fledged Budget of the Modi 2.0 government on February 1 amid a gordian knot of challenges facing the world economy. These challenges range from the global economic slowdown, rising inflation, geo-political tension, and climate change to the cost of living crisis and high debt extents.
There is, however, no easy way to cut through it. Despite this, the government will have to look at the economic challenges facing the country and have to address these challenges with an effective Budget. Where the government will have to focus on the economic growth in the Budget to accelerate economic development, it will also have to manage the difficult exercise of following on the path of fiscal consolidation to reach the target set by the Finance Commission and the FRBM Act.
The government has pencilled in a fiscal deficit target at 6.4 per cent of the GDP for the current financial year for stronger and sustainable growth. It was fixed to nurture growth through public investment to become a stronger and sustainable country. The target is consistent with the broad path -- fiscal consolidation announced by the government in the last year’s Budget to accomplish a fiscal deficit target of 4.5 per cent by the fiscal year 2025-26.
Fiscal mathematics of the current fiscal upto November 2022
The total expenditure of Rs 39.45 lakh crore is projected in the Budget Estimate (BE) of FY23, while the total receipts other than borrowings are estimated at Rs 22.84 lakh crore. The total receipts comprise of Rs 22.04 lakh crore of revenue receipts, of that and Rs 0.79 lakh crore of capital receipts. The fiscal deficit is estimated at Rs 16.61 lakh crore.
According to monthly data of the Controller General of Accounts (CGA), the Centre’s fiscal deficit during the first eight months of FY23, stood at Rs 9.78 lakh crore. It is 58.9 per cent of the annual BE higher than the corresponding period of the previous year at 46.2 per cent in the fiscal 2022. Nevertheless, this remains much lower than the corresponding figure for other recent years.
The government’s total receipts in the first eight month of FY23 stood at 64.1 per cent of the annual Budget target. It showed an increase of 6.21 per cent. Apart from this total revenue receipts showed an increase of 4.73 per cent during April-November of FY23. It stood at 64.6 per cent of the annual BE as compared to the corresponding ratio of 75.9 in FY22.
Tax revenue of the government has grown by 7.89 per cent during the same period. Total tax collection stood at 63.3 per cent of the target of Rs 19.35 lakh crore in the first eight months as compared to the corresponding ratio at 75.9 in FY22.
During the same time, non-tax revenues depicted a contraction of 11.08 per cent. It stood at 73.5 per cent of the annual BE as compared to the corresponding ratio at 91.8 in FY22.
The non-debt capital receipts during the same time stood at 52.3 per cent of the annual budget estimate as compared to the corresponding ratio of 11 per cent during the FY22. The under-realisation of disinvestment proceeds is still a matter of concern.
According to DIPAM, the government has realised, so far, only 48 per cent of the proceeds against the target of Rs 0.65 lakh crore.
During the same period, the total expenditure of the Centre has increased by 17.75 per cent as compared to 8.83 per cent during the corresponding period of FY22. It stood at 61.9 per cent against the target of Rs 39.45 lakh crore. It is because of incremental spending on food and fertiliser subsidies. Due to the increased expenditure, the government had tabled extra demand of Rs 4.36 lakh crore before parliament in December to meet the needs for subsidy on fertiliser, food, and LPG.
Data reveals that the total receipts of FY23 is a little lower and total expenditure is a little higher compared to the corresponding period of FY22. However, the fiscal position of FY23 is in a better position than FY22. However, the ongoing conflict between Russia and Ukraine and the US Fed Reserve’s plan to curb inflation in the US is still a challenge.
Is the 1st advance estimate of GDP, an opportunity for the government?
According to the 1st advance estimate of GDP released by the Ministry of Statistics and Programme Implementation (MoSPI), the economy of the country is likely to grow by 7 per cent in FY23 as compared to 8.7 per cent in FY22. Nominal GDP at current prices is estimated at Rs 273.08 lakh crore. This is Rs 15.08 lakh crore more than the annual Budget Estimate of Rs 258 lakh crore.
As the government has set a 6.4 per cent target of GDP, the 1st advance estimate of the GDP gives a room for additional spending of Rs 0.97 lakh crore – {6.4 per cent of (Rs 273.08 lakh crore – Rs 258 lakh crore)} in the current fiscal without tinkering with fiscal mathematics. This amount can be used towards capital expenditure, rural development, and defence.
Fiscal target of FY24
According to the report of Wall Street Brokerage Goldman Sachs, the government will easily meet the targeted fiscal deficit of the current fiscal. The finance minister is also hopeful for the same. She expects to meet the target due to buoyancy in the tax collection. Thus there is no need to tinker with fiscal mathematics.
It is expected that the BE for fiscal deficit in the financial year 2024 would be lower than the target of the current fiscal as there is a consistent growth in the GDP. According to the reports in the media, the government will fix the fiscal deficit target at 5.8-5.9 per cent, a 50-60 bps reduction from the current BE, for the next fiscal year.
The government has already achieved the target of the fiscal deficit of the last fiscal. In the financial year 2022, the government had a fixed BE of 6.8 per cent and further revised it to 6.9 per cent. However, as per provisional data compiled by the CGA, the actual fiscal deficit was 6.71 per cent.
However, this is the right time for the government to come out with a detailed plan for fiscal consolidation. The government should work towards an increase in revenue through rationalisation of the GST rate, simplification of direct tax structure, channelisation of asset monetisation programmes and speed-up divestment of the central public sector undertakings. Not only this, the government should also calibrate revenue expenditures and concentrate towards asset creation through capital expenditure.
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