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Amid the mounting burden of subsidies, the Centre’s revenue receipts rose just 5 per cent to Rs 5.7 trillion in the June quarter of FY23 as the surplus transferred by the Reserve Bank of India (RBI) to the Union government fell and the collection of Union excise duty and customs duty contracted during the period.
The data released by the Controller General of Accounts (CGA) on Friday showed the Centre’s fiscal deficit for the first quarter of FY23 (April-June) came in at 21.2 per cent of the full-year target on the back of strong capital expenditure and weak revenue receipts. The fiscal deficit for the same period last year (April-June FY22) was 18.2 per cent of the FY22 Budget estimate.
The central board of the Reserve Bank of India (RBI) in May announced it would transfer Rs 30,307 crore as dividend to the government for the accounting year 2021-22 as against Rs 99,122 crore last year.
The shortfall may prove crucial in a year when the government’s fertiliser and petroleum subsidies are expected to exceed the Budget Estimates amid higher commodity prices.
However, Revenue Secretary Tarun Bajaj who is also holding the additional charge of economic affairs secretary, on Thursday expressed confidence that the Centre would be able to stick to the fiscal deficit target of 6.4 per cent of GDP for FY23.
“Our revenues are robust. We are keeping a tab on the expenditures. There are going to be some downsides on the revenue side, for example, the dividend from the RBI has been lower and some other things. But I am sure we will be able to take care of it through higher revenues and by controlling the expenditure,” he told reporters.
During the first quarter of FY23, income tax and corporation tax grew at a robust rate of 40.7 per cent and 30 per cent, respectively. However, Union excise duty and customs duty contracted 9.8 per cent and 11.8 per cent, respectively, during the period.
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“While the healthy growth in tax revenues in Q1 admittedly benefits from a low base, we expect the non-excise gross tax revenues of the Centre to exceed the conservatively estimated FY23 BE by a sharp Rs 3-3.5 trillion,” said Aditi Nayar, chief economist, ICRA.
Nayar, however, warned that margin pressures on India Inc due to inflation reflected in the low corporation tax growth of just 3 per cent in June 2022 compared to June 2021.
During the June quarter, expenditure was at 24 per cent of the full-year target due to higher capex at 23.4 per cent (Rs 1.75 trillion) of the Budget Estimate of FY23. During the same period a year ago in FY22, total expenditure and capital expenditure were 23.6 per cent and 20.1 per cent, respectively, of the full-year target.
As the economy comes out of two years of the pandemic, the Centre has made capex on high-multiplier infrastructure projects the cornerstone of its revival plans, and is sticking to it in the current scenario of growth being affected by global headwinds.
“The route we have chosen and the one we are sticking with is capex. Even during the pandemic, we adopted this method of spend on capital assets, and make sure the economy revival happens. And states really showed that they had the absorptive capacity,” Finance Minister Nirmala Sitharaman had told Business Standard in early July.
The capex target for FY23 is Rs 7.5 trillion, which includes Rs 1 trillion in long-term, interest-free loans to states. Most of this amount to the states is expected to be disbursed in the July-September quarter.
Sunil Sinha, principal economist with India Ratings, said the sustained double-digit growth in capex would help the economy at a time when private investment was in wait-and-watch mode due to monetary tightening across the globe and the uncertainties created by the Russia-Ukraine conflict.
“The impact of government capex is getting reflected in the growth of various infrastructure sectors like steel and cement in Q1FY23. For a strong and durable economic recovery, it is pertinent that the Union government sustains its capex in the remaining months of FY23,” Sinha said.
Sinha said the windfall tax on crude oil and other export duties, along with buoyancy in taxes, would give adequate fiscal space to the Union government to undertake higher expenditure on subsidies and make good the loss of revenue due to cuts in excise duties on petrol and diesel.
Both analysts said the fiscal deficit target of 6.4 per cent of GDP should be achievable in spite of challenges on subsidies and welfare expenditure.
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