8 mins read . 09 Jun 2023
One of the big data points announced recently was the fiscal deficit for the full year. Now, the fiscal deficit is the budget gap that the government has to fund through the borrowing route. Till the COVID pandemic of 2020, the RBI had kept the discipline of 3.5% to 4% fiscal deficit to GDP ratio, as required by the FRBM (Fiscal Responsibility and Budget Management) Act. However, in 2020-21, the RBI overshot the fiscal deficit to over 9% of GDP. For FY23, the fiscal deficit target had been lowered to 6.4% of GDP but there were concerns if that would be achieved. Based on the data put out by the Controller General of Accounts (CGA), India closed FY23 with a fiscal deficit at 6.32% of GDP, 8 bps better than the budget estimates. This raises hopes that the FY24 target of 5.9% of fiscal deficit to GDP ratio should be perfectly achievable.
The final fiscal deficit as a share of GDP for FY23 was 6.32% compared to the target of 6.4% in the Union Budget. The bounce in the economy held the day as was evident from the Q4 GDP growth of 6.1%, and full-year FY23 GDP growth of 7.2%. But this entire growth story meant that revenues were much better than expected and that was a big boost. Consider these revenue numbers.
um it up, the government has done better than expected on tax revenues and non-tax revenues, although disinvestments fell short of expectations, amid tough market conditions.
Even as the fiscal deficit continues to be high in absolute terms, there are some encouraging signals on the expenditure front. The government did attempt expenditure cuts in the last quarter to keep fiscal deficit in check. However, the idea was that capex was not compromised. Here are two interesting data points to underscore this point.
The real story on spending is not in the overall spending but in how the revenue spending was to subsidize capex spending. This is despite heavy subsidies being offered for food and fertilizers.
India runs deficits on multiple counts. It runs a revenue deficit since the revenue inflows are not sufficient to meet the revenue outflows. Obviously, when it runs a revenue deficit, it would run a capital deficit also. Here are how the two deficits panned out.
That is the million-dollar question. FY24 is likely to see overall revenue flattening out as a global slowdown is likely to impact tax revenues in the year. It remains to be seen how the government will achieve the 5.9% fiscal deficit target. However, subsidies bill should be sharply lower and the RBI has started off with a bang transferring a surplus of Rs87,416 crore to the government as a dividend. That is nearly 3 times the budget estimates and will go a long way in cutting the fiscal deficit target to 5.9% for FY24. That is assuming there are no negative surprises!
Content Source: Controller General Of Accounts (CGA)