Govt may rein in fiscal deficit at 6.8% of GDP: First advance estimates

The government was given this lever after the first Advance Estimates pegged GDP at current prices at Rs 232.15 trillion

Even if the government spends Rs 71,000 crore more than the Budget Estimates (BE) and all revenues remain constant at the BE level, the Centre would be able to rein in its fiscal deficit at 6.8 per cent of gross domestic product (GDP).

The lever to the government was given by the first Advance Estimates, which pegged GDP at current prices at Rs 232.15 trillion for 2021-22 as against Rs 222.87 trillion assumed by the Budget. The new GDP number would be used to change various figures in the Revised Estimates compared to the BE for FY22 in the forthcoming Budget.  

The Budget had assumed the growth rate of 14.4 per cent over Rs 194.82 trillion of nominal GDP projected by the first Advance Estimates for 2020-21 then. Meanwhile, GDP at current prices came at 197.46 trillion for 2020-21, Rs 2.64 trillion higher than projected by the first Advance Estimates that time.

The first Advance Estimates have now pegged the GDP growth rate at 17.6 per cent at current prices for 2021-22, broken down into expansion of GDP at constant prices at 9.2 per cent and the inflation rate of 8.4 per cent.

The fiscal deficit could now be widened to Rs 15.78 trillion from the projected Rs 15.07 trillion, and even then the BE target of reining it in at 6.8 per cent would be met.

However, the issue is that the government would not spend just Rs 71,000 crore but Rs 3.28 trillion over the BE, for which it has already got Parliamentary nod through two batches of the supplementary demand for grants. Of this, Rs 1.75 trillion is expected to be funded by the buoyant tax receipts and the RBI's dividend.

Tax collections, after devolution to the states, stood at Rs 11.35 trillion by the end of November, constituting 73.5 per cent of the BE at Rs 15.45 trillion in the current financial year. It had constituted 42.1 per cent of the BE in the previous financial year and 45.5 per cent in FY20. On the other hand, non-tax revenues, including the RBI's dividend, stood at Rs 2.23 trillion, accounting for 91.8 per cent of the BE at Rs 2.43 trillion. It had constituted 32.3 per cent of the BE in the corresponding period of FY21 and 74.3 per cent in FY20.

Most of the remaining Rs 1.53 trillion of extra spending is expected to be matched by savings from the departments which would not spend the amount allocated to them in the Budget.

That way, the government was in a comfortable position to rein in its fiscal deficit at 6.8 per cent of GDP. However, disinvestment receipts of the government have not progressed in line with the projections given in the Budget. The Budget had pegged Rs 1.75 trillion to come from this head, but only Rs 9,330 crore has been realised till date.

The government eyes Rs 1.45 trillion from LIC’s IPO and BPCL privatisation. Of these two big-ticket disinvestments, BPCL’s disinvestment is all set to be deferred while LIC’s IPO may come up by March that will fetch the government Rs 1 trillion.

India Ratings Chief Economist Devendra Pant said the government would improve upon its projections by reining in its fiscal deficit at 6.6 per cent of GDP in FY22. He projected this number by assuming that disinvestment proceeds would yield just Rs 45,000-50,000 crore.

However, Aditi Nayar, chief economist, ICRA Ratings, said only if the LIC IPO sees the light of the day in the current financial year, the government will be able to contain the fiscal deficit at 6.8 per cent of GDP.

D K Srivastava, chief policy advisor, EY India, said with buoyant tax revenues, the government may be able to limit the fiscal deficit to its budgeted level of 6.8 per cent of GDP although a marginal slippage may not be ruled out.