Centre still hopeful on 6.4% fiscal deficit on back of tax revenue gains

The Finance Ministry is expecting net direct and indirect tax collections combined to exceed budget targets by as much as Rs 4.5 trillion, a boost which may still enable it to meet the fiscal deficit target for FY23 of 6.4 percent of GDP, in spite of a challenging year on the expenditure front.
 

“For direct taxes, the budget estimates could be exceeded by Rs 3.5 trillion, though the month of December could be crucial to achieve that, especially the advance tax numbers,” a senior official told Business Standard.
 

“In indirect taxes, the target could be exceeded by between Rs 70,000 crore to Rs 1 trillion. This will all be on the GST front, as some shortfall is expected on customs and excise duties,” the official said.
 

The net tax revenue budget estimate for FY23 was Rs 19.35 trillion. A boost of Rs 4.5 trillion would take the revised estimates to Rs 23.85 trillion.
 

As a result of shocks caused to food and energy prices due to the war in Europe, the centre has seen a massive rise in food and fertilizer subsidies. The fertilizer subsidy for the year is expected to rise to Rs 2.5 trillion from a budgeted Rs 1.05 trillion.
 

After multiple extensions to the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY), the food subsidy bill for the year stands at Rs 3.3 trillion, compared with a budget target of Rs 2.07 trillion. Additionally, there could be an increase in some other flagship schemes as well, compared with BE. As reported earlier, the Finance Ministry is likely to accept the Rural Development Ministry’s demand for an additional Rs 25,000 crore for the flagship scheme – National Rural Employment Guarantee Program– for the current fiscal year.
 

There are now additional three factors at play, said a second official. “A shortfall is expected in non-tax revenue and divestment, we just have to see by how much. Second, what sort of savings can be had by eliminating non-priority spending. And third, what will be the nominal GDP for FY23,” the official said.
 

The centre expects that the target of dividends from non-financial state-owned enterprises (PSUs) could be missed this year. Oil and gas companies contribute a major chunk of PSU dividends. However they may not be able to pay as much as previous years, or not at all, because of how crude oil prices have impacted them. The BE for dividends from PSUs is Rs 40,000 crore, out of which Rs 25,978 crore have been garnered so far.
 

There may also be a shortfall in dividends from state-owned banks and other financial institutions. That is because the Reserve Bank of India, for its fiscal year ending March 2022 (which will reflect in the centre’s current fiscal year), transferred Rs 30,307 crore as dividend, much lower than expectations. And out of the divestment target of Rs 65,000 crore, Rs 28,383 crore has been gotten so far.
 

The nominal GDP for the year has been assumed at Rs 258 trillion. However, given the impact of inflation, it could be much higher, thus giving policymakers more room, as fiscal deficit is taken as percentage of nominal GDP.