Fiscal Deficit In FY22 To Come An At 6.6% of GDP: India Ratings

India Ratings and Research's estimation shows that higher tax and non-tax revenue collections this fiscal are expected to more than offset the shortfall in disinvestment revenue, leading to the fiscal deficit coming in at 6.6% of GDP in FY22, 20bp lower than budgeted.

"The data relating to the union government finances show that tax collections so far have immensely benefitted both from growth and inflation. While the GDP growth is benefitting due to the lower base of last year, higher inflation (GDP deflator) has led to the economy registering higher nominal GDP growth and thus helping higher tax collections. The GDP deflator growth in 1QFY22 was highest at 9.7% and second highest at 8.4% in 2QFY22 in the quarterly series of 2011-12 base. As a result, the nominal GDP growth came in 31.7% in 1QFY22 and 17.5% in 2QFY22," the ratings agency says.

Ind-Ra estimates the gross tax revenue collection in FY22 to be INR5.9 trillion higher than the budgeted figure, with the share of corporation tax being 28.4%, income tax 16.3%, GST 14.7%, custom duty 14.2%, excise duty 22.4% and others 3.9%. As a result, the share of direct tax in the expected additional gross tax revenue collection works out to be 44.7% and that of indirect tax 55.3%. On the whole, the share of direct taxes in the gross tax revenue of FY22 is expected to increase to 48.9% in FY22 from 45.8% in FY21.

Like tax revenue, even the non-tax revenue is expected to come in higher than the budgeted figure in FY22. Non-tax revenue is forecasted to reach Rs3.1 trillion in FY22 as against the budgeted INR2.4 trillion (FY21 (RE): INR2.1 trillion). Non-tax revenue collections of INR2.1 trillion during April-October 2021 grew at 78.0% yoy and were 85.1% of the FY22 budgeted amount.