India's Fiscal Deficit At Rs 6.06 Lakh Crore In 4 Months Of FY24, Hits 33.9% Of Budgeted Estimates

India's fiscal deficit reached 33.9% of the budgeted estimates from April to July of the financial year 2023-24. As per the CGA data, the country's fiscal deficit stood at Rs 6,05,593 crore up to July of FY24, accounting for 33.9% of the budgeted estimates of Rs 17,86,816 crore. ICRA said that the fiscal deficit was driven by higher revenue and capital expenditure and an up-fronting of tax devolution to the state governments.

Data from CGA further showed that total receipts stood at Rs 7,75,107 crore in the first four months of FY24, accounting for 28.5% of budgeted estimates of Rs 27,16,281 crore.

According to Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA, the Government of India's fiscal deficit jumped to Rs. 6.1 trillion or 34% of the FY2024 BE in April-July FY2024 from Rs. 3.4 trillion in the first four months of FY2023, led by higher revenue and capital expenditure and an up-fronting of tax devolution to the state governments. While net tax revenues contracted by 13%, non-tax revenues doubled on the back of the RBI dividend, amidst a 16% rise in revenue expenditure, and a robust 52% YoY expansion in capex.

Also, she said, revenue expenditure doubled to Rs. 2.9 trillion in the month of July 2023, adding to the YoY rise in the fiscal deficit. "

Further, she explained that notwithstanding the YoY spike in the GoI's fiscal deficit and high inflation print anticipated for August 2023, we expect the 10-year G-sec to range between 7.15-7.25% in the near term, driven by global trends.

Meanwhile, gross tax collections rose by a mild 3% YoY in April-July FY2024, dampened by direct taxes, offsetting the healthy growth in GST collections and customs duty. In July 2023, excise duty emerged from several months of sustained contraction emanating from the cut on cess on petrol and diesel in May 2022, eking out a mild 2% growth.

With a step-up in June-July 2023, Nayar said, central tax devolution increased quite appreciably to Rs. 3.1 trillion in April-July FY2024 from Rs. 2.0 trillion in April-July FY2023, contributing to the YoY contraction in net tax revenues. To meet the FY2024 BE, the GoI has to release Rs. 7.1 trillion to the states in the next eight months, which is 5% lower than the amount devolved in August-March in FY2023 as per ICRA's calculations. This would contain the incremental fiscal deficit in some of the ensuing months, especially August 2023.

"Higher than budgeted dividend surplus transfer of Rs. 874.2 billion from the RBI is likely to provide some cushion to meet any undershooting in other revenues streams including disinvestment or potential overshooting in expenses, relative to respective BE, such as MGNREGA," she added.