Bumpy Ride Ahead For Government Finances: CARE Ratings

With robust tax collections helping revenue receipts overshoot the revised estimate by Rs 0.9 lakh crore, the central government finances in FY22 have been fairly comfortable despite the impact of the second and third waves of Covid-19, CARE Ratings has said in a report. After hitting a high of 9.2% in the pandemic struck FY21, the fiscal deficit in FY22 has been contained at 6.7% of the GDP, lower than the revised estimate of 6.9%

Government receipts

According to Care Ratings, supported by economic rebound, high inflation, improved corporate performance and enhanced tax compliance, gross tax revenue collections in FY22 rose to Rs 27.1 lakh crore, higher than the revised estimates by nearly Rs 1.9 lakh crore. "Gross tax collections to GDP ratio witnessed a sharp uptick to 11.5 in FY22 from 10.2 in the previous year. Revenue from customs, income and corporate taxes have been strong in FY22 (refer to Table 2). The growth in excise collections was muted on account of a cut in fuel excise duty implemented in November 2021. Non-tax collections received a boost from RBI's surplus transfer of Rs 99,122 crore (higher than the budgeted amount) to the government for the nine-month accounting period ended March 31, 2021. On the capital receipts front, disinvestment proceeds for the year have been lacklustre at Rs 8,432 crore, much lower than the revised estimate of Rs 78,000 crore," the ratings agency has said.

"In a nutshell, while the duty cuts and additional subsidies announced by the government will put pressure on its finances, the overall impact will be cushioned by higher tax revenue collections, the possibility of higher disinvestment revenue and higher nominal GDP growth amid a sharp rise in inflation," the ratings agency has concluded.