Expect fiscal slippage of 0.4% in FY23, says brokerage firm Nomura

The Centre's reversal on windfall taxes within 18 days of announcing the moves led a Japanese brokerage to flag its impact on fiscal math.

Nomura said the reversal makes it maintain the earlier projection for a 0.4 per cent fiscal slippage over the budgetary target of 6.4 per cent for FY23.

The Centre on Wednesday scrapped a three-week-old tax on the export of petrol and cut windfall taxes on overseas shipments of diesel and ATF as well as on domestically produced crude oil, which led to heavy gains on Reliance Industries and state-run ONGC counters.

While the Rs 6 a litre export duty on petrol was scrapped, the tax on the export of diesel and jet fuel (ATF) was cut by Rs 2 per litre each to Rs 11 and Rs 4, respectively. The tax on domestically produced crude was also cut to Rs 17,000 per tonne from Rs 23,250, which will benefit Vedanta and ONGC.

Nomura said the decisions will reduce the fiscal windfall, mentioning that earlier, it was expecting gains to the tune of 0.37 per cent of GDP.

"We estimate that these tax cuts will reduce the total levy from fuel exports from Rs 66,400 crore (0.24 per cent of GDP) on an annualised basis to Rs 21,100 crore (0.08 per cent of GDP), while the reduced cess on domestic crude oil production is likely to reduce the annualised tax revenue by Rs 18,500 crore (0.07 per cent of GDP) to Rs 50,500 crore (0.18 per cent of GDP)," the brokerage said.

The brokerage said at the margin, the reduction in export duties on fuel should be positive for export growth, but it will await merchandise trade data for July-August to assess whether there was a material deterioration in oil exports due to the imposition of taxes.

It estimated the current account deficit to widen to 3.3 per cent of GDP in FY23 from 1.2 per cent in FY22.

While FDI (foreign direct investment) flows are likely to remain stable, they are unlikely to fully offset the weakness in FII (foreign institutional investors) flows, which should lead to a negative basic balance of payments, it said.