Deficits Get a Thrust in November 2022
Since the start of FY23, there have been two months when there was a revenue surplus and 1 month when there was a fiscal surplus. However, in the month of November, the monthly fiscal deficit and the monthly revenue deficit spike were very sharp. The monthly accretion to fiscal deficit in November 2022 stood at Rs220,017 crore compared to Rs148,588 crore in November 2021. Let us turn to the revenue deficit. The monthly accretion to the revenue deficit in November 2022 was Rs187,707 crore compared to just Rs129,209 crore in November 2021. Not only are the revenue deficit and fiscal deficit for November 2022 higher on a YoY basis, but they are also higher sharply on a sequential MOM basis.
Fiscal Deficit Picture for FY23 Till November 2022
The Controller General of Accounts (CGA) publishes the fiscal deficit data with a lag of 1 month i.e. data up to November 2022 is published on the last working day of December 2022. Here are some key takeaways on the fiscal deficit and its key components.
- For the first 8 months of FY23 (April to November 2022), the fiscal deficit in absolute terms stood at Rs978,154 crore. That translates into 58.9% of the budget estimates of fiscal deficit for FY23 at Rs16,61,196 crore.
- For now, the government is confident of sticking to its Budget target of reining in fiscal deficit at 6.4% of GDP. There were concerns that the battle against inflation may induce the government to slacken on the fiscal deficit front, but that is not happening.
- Let us focus on the receipts side of the government account. Total receipts up to November 2022 were to the tune of Rs14.65 trillion, which is already 64.1% of the full-year estimated receipts. Direct taxes and GST growth has been robust in FY23.
- For FY23 till date, the total receipts of Rs14.65 trillion comprised of Rs12.25 trillion by way of tax revenues and Rs1.98 trillion by non-tax revenues. Among the non-tax revenues, the RBI dividend to the government for FY22 fell to 0.30 trillion while the total divestment target itself is quite small this time around.
- For the 8 months to November 2022, the total expenditure (revenue plus capital spending) stood at Rs24.43 trillion or 61.9% of the full-year expenditure target for financial year FY23 pegged at Rs39.45 trillion. The total spending of Rs24.43 trillion includes Rs19.96 trillion of revenues expenditure and Rs4.47 trillion of capital expenditure.
- The biggest components of revenue spending in the first 8 months of FY23 to November 2022 were defence services, crop subsidies, fertilizer subsidies and food subsidies. The biggest capital outlays were in defence. However, capital spending in November 2022 has tapered to Rs38,099 crore from a peak level of Rs90,561 crore in September 2022.
What Were the Triggers for Budgetary Deficits?
Some interesting trends have emerged from the deficit numbers for FY23.
- Fiscal deficit up to November 2022 stood at 58.9% of the full-year budget. This is up sharply due to a spike in spending in the last couple of months. Fiscal deficit accretion of Rs2.20 trillion in November was the highest monthly accretion in FY23 so far.
- Revenue deficit up to November 2022 stood at 57.8% of the full-year budget due to a sharp spike of Rs1.878 trillion in revenue deficit in the month of November 2022. The latest month has seen a spike in revenue spending and much lower capital spending.
- One of the key metrics of the fragility of the fiscal deficit is the ratio of Revenue deficit as a share of fiscal deficit. That ratio has again spiked to 58.5%. Incidentally, this ratio has fallen from 59% in August 2022 to 50.2% in September 2022.
- The primary deficit till November 2022 was 60.1% of full-year budget estimates. The primary deficit is fiscal deficit excluding interest payments.
Fiscal Deficit Guidance in The Union Budget 2023
For FY23, it looks like the government should be able to protect the fiscal deficit at 6.4% of GDP as targeted in the Union Budget 2022. However, the big challenge is what to announce as a fiscal deficit in the Union Budget for FY24. With liquidity infused and growth back, it is time for the government to take a risk. Global investors have been concerned about the rising fiscal deficit for quite some time now. The Finance Minister must use this opportunity to lower the fiscal deficit bar. More important they must also announce a glide path to get back to 4% at the earliest. That would do a world of good for the confidence of markets.