India's core sector grows 5.8%; fiscal deficit widens to 82.7% of RE

Growth in eight infrastructure sectors rose to a four-month high at 5.8 per cent in February. It was boosted by a low base during the same month a year ago, when the core sector contracted 3.3 per cent, official data showed. 

However, sequentially, core sector growth contracted 5.3 per cent in February, signalling growth momentum is yet to be on a strong footing. It boosted the annual growth rate to a four-month high of 5.8 per cent.

Data released by the industry department showed growth in all eight sectors contracted sequentially in February. When compared to the same month a year ago, all sectors except crude oil (-2.2 per cent) and fertilisers (-1.4 per cent) registered robust growth.

Sunil Kumar Sinha, principal economist at India Ratings, said the production level of crude oil, refinery products and fertiliser are still lower than the pre-Covid level (February 2020).

“Production of other core segments are also just above the pre-Covid level. This shows that there is still a long way to go so far as revival of core sector output is concerned. Going forward, the disruption to the global supply chain may further impinge on the availability of key raw materials like natural gas and coal in the domestic market due to the Russia-Ukraine conflict,” he added.

Several agencies have cut their growth projections for India recently after Russia’s invasion of Ukraine increased uncertainties.

Rating agency ICRA slashed India’s GDP forecast for FY23 to 7.2 per cent from 8 per cent projected earlier. It blamed the elevated commodity prices and supply chain disruptions caused by the ongoing war and lockdowns in China.

Separately, data released by the Controller General of Accounts showed the government exhausted 82.7 per cent of its full-year revised fiscal deficit target in the first 11 months of the year till February. It compares to 76 per cent during the same period a year ago.

Madan Sabnavis, chief economist at Bank of Baroda, said the 83 per cent fiscal deficit of the budgeted amount by February leaves scope for expansion in March without any additional borrowing being incurred, even if it is exceeded. 

“Only 80 per cent of budgeted capex has come through and it does look like that the target of Rs 6 trillion will not be attained as March has been a month where there has been preoccupation with the war impact. On the whole, the fiscal deficit target would not be breached and there could be an upside of savings, that is, lower fiscal deficit, albeit marginal if capex is cut,” he added.

Finance minister Nirmala Sitharaman, while presenting the FY23 Budget, marginally increased the fiscal deficit for FY22 to 6.9 per cent from 6.8 per cent estimated earlier. Sinha said the sharp increase in fiscal deficit during February-end was due to higher sharing of central taxes with states. In February, Rs 2.42 trillion was shared with states against the average of Rs 545.39 billion per month for April 2021-January 2022. 

Due to this, year-to-date growth on revenue receipt of the Union government declined to 21.77 per cent in February-end from 40.44 per cent in January-end. 

However, post March 15, tax collections are set to pick up, and hence, the target is expected to be achieved.

“Despite sluggish disinvestment proceeds, weak expenditure growth in February-end (11.54 per cent) has led to fiscal deficit at the end of February 2022 to be 6.33 per cent lower than last year. 

Mostly, the transfer of excess funds to states based on the revised estimates takes place in March. This year, it took place in February,” he added.