What do Q1 numbers tell us about the Indian economy?

The central government’s fiscal deficit for the first quarter of April-June period came in at 21.2% of the full-year target of Rs 16.6 trillion. That’s lower than expected due to higher tax collection and lower spending on subsidies. 

The deficit in the corresponding period last year was 18.2% of the FY22 budget estimate of Rs 15.07 trillion. The government said it is sticking to the current fiscal deficit target of 6.4% of GDP for FY23.
 

Led by the ongoing economic recovery and improvement in GST compliance, the net tax revenue in Q1 was Rs 5.06 trillion, that is 26.1% of budget estimates, compared to 26.7% last year.

On the expenditure side, the government’s spending on major subsidies including food and fertilisers, came down to nearly Rs 68,000 crore during April-June period, compared to about 1 trillion rupees a year earlier.

At Rs 9.48 trillion, total expenditure in Q1 was 24% of FY23 budget size of Rs 39.4 trillion. 

In the first quarter, 23.4% of capital expenditure target of Rs 7.5 trillion was achieved. It was Rs 1.75 trillion compared with Rs 1.11 trillion last year.

Meanwhile, on the economy side, India’s eight core infrastructure sectors grew in double digits in the April-June period. 

The disaggregated trends of core sector data are mixed, ranging from a muted 0.6% growth for crude oil to a robust expansion of 31.2% for coal. Apart from crude, steel and natural gas demonstratedImports grew twice as fast, growing 47.4% to $187 billion.  single digit growth.

Retail inflation averaged 7.3% during the quarter. For each of the three months, it has remained above the RBI’s upper tolerance limit of 6%. 

Both widening Current Account Deficit and dollar strength have weighed upon the rupee, which depreciated 4.4% so far this fiscal. Current Account Deficit is seen at 3% of GDP in FY23 versus 1.2% last fiscal.

As RBI defended the rupee against volatility, India’s foreign exchange reserves declined from $606 billion at the start of April to $571.56 billion last week.India’s merchandise exports during the first quarter jumped 22.2% to record $116.7 billion.

[Byte of Sunil Sinha, Principal Economist and Director (Public Finance), India Ratings and Research]

The lowest RBI surplus transfer in a decade has led to the halving of non-tax revenue in the first quarter, which meant a weak 5% rise in revenue receipts in the first quarter.

But going forward, robust tax collections will help the government absorb higher-than-budgeted subsidy outgo and revenue loss due to excise duty cuts.  

Experts, therefore, say the government will comfortably meet its FY23 fiscal deficit target.