Despite an additional expenditure of Rs 3.73 lakh crore announced earlier this month, the government is set to undershoot the fiscal deficit target by 20 bps at 6.6 per cent on the back of overall robust revenue collections and under-spending by many ministries, according to a report. Rising revenue will take care of the additional expenditure planned, it added.
The India Ratings report came a day after the Reserve Bank in its second financial stability report for the current fiscal said the government would miss the 6.8 per cent budgeted fiscal deficit target for the current year and most analysts also feel the same.
The RBI did not offer a number as to by how much the target will be missed. In the report on Thursday, the rating agency said higher tax and non-tax revenue collections this fiscal are expected to more than offset the likely shortfall in disinvestment revenue, leading to the fiscal deficit printing at 6.6 per cent of GDP, which is 20 bps lower than budgeted.
The government finances show that tax collections so far have hugely benefitted both from growth and inflation. While GDP growth is benefitting from the low base effect, higher inflation (GDP deflator) has led to the economy logging in higher nominal growth, which in turn is helping higher tax mop-up. The GDP deflator growth in Q1FY22 was the highest at 9.7 per cent and in Q2 the same was second highest at 8.4 per cent.
As a result, nominal GDP growth printed at 31.7 per cent in Q1 and 17.5 per cent in Q2, the report said. The agency estimated gross tax revenue collection to be at Rs 5.9 lakh crore this fiscal --higher than the budgeted figure. Of the total tax mop, the share of corporation tax will be 28.4 per cent, income tax 16.3 per cent, GST 14.7 per cent, customs duty 14.2 per cent, excise duty at 2.4 per cent and others will be 3.9 per cent.
Accordingly, the share of direct tax in the expected additional gross tax collection will be 44.7 per cent and indirect tax will be 55.3 per cent. On the whole, the share of direct taxes in gross tax revenue is expected to rise to 48.9 per cent in FY22 from 45.8 per cent in FY21, as per the report. The agency also expects even non-tax revenue mop-up to be higher than the budgeted in FY22 as well. Non-tax revenue is forecast to reach Rs 3.1 lakh crore this fiscal as against budgeted Rs 2.4 lakh crore in FY21. Non-tax revenue collections already crossed Rs 2.1 lakh crore till October, clipping at a whopping 78 per cent year-on-year.
This is already 85.1 per cent of the budgeted amount. However, capital receipts are lagging and despite growing 20.3 per cent year-on-year till October were only 10.5 per cent of the budgeted amount. Amidst all this, the only disappointment is the divestment target at Rs 1.75 lakh crore and if the first seven months of the fiscal is an indication, once again the target will be missed by a wide margin as only Rs 9,364 crore, or only 5.4 per cent, could be realised so far.
On the expenditure front, the government has brought in two supplementary demands for grants -- one for Rs 23,675 crore and another for Rs 2,99,243 crore. This will lead to total expenditure commitments of Rs 38.1 lakh crore in FY22 -- of this, revenue expenditure is Rs 31.8 lakh crore and capital expenditure will be Rs 6.2 lakh crore.
Though the size of gross government borrowing has proceeded at a pace that suggests that budget estimates will be adhered to, repayment obligations of the government indicate a significant uptrend going forward, implying that gross borrowing is likely to remain elevated notwithstanding fiscal consolidation, the RBI said in its report on Wednesday.
Earlier this month, the government sought parliamentary nod for Rs 3.73 lakh crore of additional spending, including Rs 62,000 crore infusion into the company that holds residual assets and liabilities of Air India after its privatisation as part of extra spending and an additional Rs 2,628 crore would be given towards loans and advances to Air India for recoupment of advance from the Contingency Fund.
The India Ratings report said its estimates suggest that the final revenue expenditure will be Rs 2.8 lakh crore higher than the budgeted numbers and is only Rs 21,600 crore more than the proposed FY22 revenue expenditure -- budgeted plus two supplementary demand for grants, despite low expenditure by a few ministries/departments.
Of the 101 demands for grants for various ministries, seven ministries have spent under 20 per cent of their budgeted amount till October; 21 ministries have spent 20-40 per cent. The total budget (revenue and capital) of these 28 ministries in FY22 is Rs 5.5 lakh crore while the combined expenditure in the first seven months was only Rs 87,450 crore.