Centre's fiscal deficit hits 12.3% of full-year target in April-May period

The Centre’s fiscal deficit for the first two months (April-May) of FY23 came in at Rs 2.04 trillion, or 12.3 per cent of the Budget Estimate of Rs 16.6 trillion, compared with 8.2 per cent for the same period last year, primarily on the back of lower non-tax revenue and higher capital expenditure.

According to data released on Thursday by the Controller General of Accounts (CGA), net tax revenues for April-May came in at Rs 3.07 trillion, or 15.9 per cent of FY23 BE of Rs 19.35 trillion. For April-May FY22, net tax revenue was 15.1 percent of the full-year target.

Non-tax revenue came in at Rs 49,251 crore, or 18.3 per cent of the full year target of Rs 2.69 trillion, compared with 48 per cent for the same period last year. This is primarily because the Reserve Bank of India (RBI), for its fiscal year ended March 2022 (which will reflect in the Centre’s current fiscal year), transferred Rs 30,307 crore as dividend, much lower than expectations. Last year, the dividend transferred was Rs 99,122 crore.

“The Centre’s non-tax revenues have been dampened by the decline in the RBI’s surplus transfer,” said Aditi Nayar, chief economist with ICRA.

Revenue expenditure for April-May FY23 was Rs 4.79 trillion, 15 per cent of the FY23 target of Rs 31.9 trillion, compared with 14.2 per cent for the same period last year. Capex for the first two months was Rs 1.07 trillion, or 14.3 per cent of FY23 BE of Rs 7.5 trillion, compared with 11.4 per cent in FY22.

However, just for May, capex was much lower than April. “Capital expenditure displayed a sobering downtick to Rs 28,149 crore from Rs 78,925 crore in April 2022, while maintaining a high YoY expansion,” Nayar said.

“We believe that continued high inflation leading to higher nominal GDP is expected to help the Union government achieve its tax collection target of FY23,” said Sunil Kumar Sinha, principal economist with India Ratings.

Sinha said while a cut in excise duties for petrol and diesel would have an impact on the Union excise collections, buoyancy in other revenues was likely to compensate for the decline in excise collections. There is no major threat to the fiscal deficit target of 6.4 per cent of GDP for the year.

“We continue to maintain that central tax devolution will overshoot the FY23 Budget Estimates, led by an expected upside in non-excise tax revenues, warranting an early reassessment of the monthly amounts being shared with the states to enable them to boost their spending and support economic growth,” said ICRA’s Nayar.