Apr-Feb fiscal deficit at 86.5% of FY24 aim, net tax revenue falls in Feb

“The gross tax revenue of the union government grew at a robust 13.4% YoY during 11 months of FY24. This was supported by an income tax growth of 25.8% YoY and corporate taxes 17.3% YoY. However, centre’s net tax collections grew just 6.8% YoY during 11 months of FY24 which is at a four-year low, due to higher growth in transfers to the states. The tax devolution to the states was up 27.9% YoY during 11 months of FY24,” Paras Jasrai, Senior Analyst, India Ratings and Research said.

The union government had given two additional transfers to the states during February 2024. Two instalments of tax devolution amounting Rs 1.42 lakh crore were released to states in February. With the latest release of funds, the Centre has released Rs10.32 lakh crore, leaving just Rs 68,000 crore to be released later in March.

On the expenditure front, even though revenue expenditure has been compressed significantly, economists said the quality of deficit (ratio of revenue to fiscal deficit) is significantly better this fiscal as it stood at 48.7 per cent during 11 months of FY24 (record-low) and suggests that majority of the borrowing has been used for capex.

During the first 11 months of FY24, the centre spent 84.8 per cent of the Rs 9.5 lakh crore capital expenditure target compared to 81.1 per cent during the same period a year ago. In February, the capex increased to Rs 84,426 crore from Rs 47,557 crore in January.

Revenue expenditure for April-February stood at 83.1 per cent of FY24 in the revised estimate of Rs 35.4 lakh crore as compared to 83.9 per cent in the same period a year ago. The centre’s total expenditure of Rs 37.5 lakh crore for April-February in FY24 reached 83.4 per cent of the revised estimate.

Some economists pointed out that there is a shortfall in spending for some sectors which may result in some savings to the government if the amounts do not get spent by March end. “The government accounts show that the government is still around Rs 7.43 lakh crore of expenditure short of the target which means that this amount would be spent in March. Major shortfalls are in: agriculture (Rs 20,668 crore), rural (Rs 48,088 crore), chemicals and fertilisers (Rs 16,150 crore), roads (Rs 26,000 crore), consumer affairs (Rs 35117 crore),” Madan Sabnavis, Chief Economist, Bank of Baroda said.

Any savings combined with a higher than projected GDP growth rate can help reduce the fiscal deficit ratio by 0.1-0.2 per cent of GDP, he added.