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Journalism of Courage
For most of this financial year, while fiscal and monetary policies were focused on taming runaway inflation, the bane of high prices could now turn into a blessing of sorts, as it could help the government balance its fiscal math ahead of the presentation of the following year’s Budget.
Even as tax revenues are seen slowing down in the third quarter, and government expenditure is set to overshoot significantly with a ballooning subsidies bill, a higher nominal GDP estimate of 15.4 per cent (as against an assumption of 11.1 per cent in the Budget for 2022-23) could end up helping the government meet its fiscal deficit target of 6.4 per cent of the GDP for this fiscal.
Experts said that the fiscal deficit is expected to be higher in absolute terms by at least Rs 1 lakh crore, but the gains from a rise in nominal GDP (which considers inflation) will help meet the Budget targets. However, the pitfall of this gain would be seen next fiscal year, wherein a potentially slower growth rate and tepid tax revenues will adversely affect the government’s Budget math.
In its report, India Ratings, a Fitch-group company, said that the revenue and fiscal deficits are expected to come in at Rs 10.58 lakh crore and Rs 17.61 lakh crore in FY23, higher than the budgeted Rs 9.9 lakh crore and Rs 16.61 lakh crore, respectively, in FY23. “However, the higher-than-budgeted nominal GDP would help meet the budgeted target for revenue and fiscal deficit at 3.8per cent and 6.4per cent of GDP, respectively, in FY23,” it said.
The cushion provided by an overshoot in revenue projections and stronger than budgeted nominal growth will help absorb higher spending needs, DBS said in a note. “The FY23 fiscal math has benefited from a) strong nominal GDP growth of around 16per cent vs budgeted 11per cent; b) above target tax collections due to better growth, reopening boost, formalisation, and tighter compliance; c) pick up in nominal GST collections, which have helped to offset lower RBI dividends, fuel excise cuts, higher subsidies, and divestment miss,” it said. As per the latest data on government finances for April-November, the first eight months of this fiscal, the deficit reached 59 per cent of the full-year target, higher than 46 per cent in the corresponding period a year ago.
Direct tax collections rose 24 per cent YoY, while under indirect taxes, average monthly GST receipts are up 20 per cent. Non-tax revenues have grown slower with weaker-than-expected dividends from the Reserve Bank of India and slower divestment proceeds, with non-tax revenue at 74 per cent of the year-end target during April-November as against 92 per cent a year ago.
For the next fiscal, the government, however, will face a challenge with slower real and nominal GDP growth amid weakening demand conditions, a slowing global economy and normalising base effects from the pandemic. “With an expected retail inflation print at just 4.3 per cent and a mere 1 per cent growth in the wholesale price index in FY24, GDP deflator could be 2 per cent, dragging down India’s nominal GDP growth to the lowest level compared to any year between the early 1970s and FY19. Such a slow growth rate would have serious implications for the macroeconomy and financial markets,” Motilal Oswal said in a report.
