FY23 fiscal deficit to overshoot

by Manasi Swamy

The government, in February 2022, had budgeted for a gross fiscal deficit (GFD) of Rs.16.6 trillion for 2022-23. We expect fiscal deficit to exceed the budgeted amount by about Rs.800 billion and reach Rs.17.4 trillion during the year. However, a higher than expected nominal GDP will likely enable the GFD-to-GDP ratio for 2022-23 to not deviate substantially from its budgeted mark of 6.4 per cent.

The fiscal deficit is expected to increase because of the central government’s efforts to control inflation and also to support vulnerable sections of society.

One of the biggest fiscal measures the government took to arrest rising inflation is the excise duty cut of Rs.8 per litre on petrol and Rs.6 per litre on diesel announced on May 22, 2022. The Centre also decided to provide a subsidy on LPG of Rs.200 per cylinder to the beneficiaries of PM Ujjwala Yojana. The revenue impact of this on the Centre’s finances for the remaining part of 2022-23 will be to the tune of Rs.860 billion. The Centre, on November 3, 2021, had slashed excise duty on petrol by Rs.5 per litre and on diesel by Rs.10 per litre. Cumulative impact of these duty cuts will be a 36.6 per cent contraction in excise duty collections to Rs.2.5 trillion in 2022-23.

On May 24, 2022, the Centre exempted 2 million tonne imports of crude soyabean oil and sunflower oil from customs duty and agri cess till March 2024. Earlier in February 2022, the Centre had reduced the effective duty on crude palm oil imports to 5.5 per cent from 8.25 per cent. It also went for customs duty rationalisation on raw materials and intermediaries for iron, steel and plastic on May 21, 2022. These measures are likely to result into a revenue loss of about Rs.250 billion. But, considering the buoyancy in customs duty collection on other imported items due to high international prices, overall customs duty collections for 2022-23 may shrink by a lower magnitude of Rs.200 billion. We expect customs duty collection in 2022-23 to amount to Rs.1.9 trillion, 3.1 per cent lower than in 2021-22.

The government has budgeted for goods & services tax (GST) collection of Rs.7.8 trillion for 2022-23. Considering the rise in inflation and higher-than-budgeted base of last year, we expect GST collections in 2022-23 to exceed the budgeted amount by Rs.270 billion. At Rs.8.1 trillion, total collections are expected to be 15.8 per cent higher than last year.

Similarly, collections of two major direct taxes income tax and corporate tax are likely to exceed their budgeted amount for 2022-23 by Rs.745 billion and Rs.775 billion, respectively. Income tax collections during the year are expected to measure Rs.7.7 trillion and corporate tax collections nearly Rs.8 trillion, 15 per cent and 12.5 per cent higher than in 2021-22, respectively.

After disbursing the states’ share in central taxes, net tax revenue collections in 2022-23 at Rs.22.6 trillion are expected to be about Rs.550 billion higher than their budgeted amount.

On the other hand, non-tax revenue collections by the government are expected to fall short of their target for 2022-23 by about Rs.200 billion due to lower-than-budgeted transfer of surplus by the Reserve Bank of India (RBI). The apex bank transferred surplus of Rs.303 billion for 2021-22 into the government’s account in May 2022. This is much lower than the total dividend transfers of Rs.739 billion by the RBI and PSUs budgeted for the year. We estimate the Centre’s non-tax revenue collections during 2022-23 to be Rs.2.5 trillion, 28.3 per cent lower than a year ago unless the government springs a surprise of a successful 5G spectrum auction which is getting delayed for many months now.

For now, we do not anticipate any slippage in non-debt capital receipts for 2022-23. These comprise of disinvestment proceeds and recovery of loans. The government has managed to garner Rs.240 billion though the LIC IPO and sale of its stake in ONGC and PPL so far. It has set the disinvestment target for 2022-23 at Rs.650 billion.

Overall, we expect the government to garner total non-debt receipts of Rs.23.4 trillion in 2022-23, which would be Rs.600 billion higher than the budget estimate. These will also be 6.1 per cent higher than the non-debt receipts mobilised in 2021-22.

Besides tax cuts, the Centre is trying to mitigate the impact of rising imported inflation on the domestic economy through greater provisioning for subsidies. To insulate farmers from the sharp increases in DAP and MOP prices, the Centre has decided to double fertiliser subsidy for 2022-23 to Rs 2.15 trillion from its budgeted level of Rs.1.05 trillion. On March 26, 2022, the Centre had decided to extend the Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) for 6 months till September 2022, with an outlay of Rs.880 billion. After adjusting for the expenditure savings on lower wheat procurement this year, total food subsidy burden for 2022-23 works out to Rs.2.6 trillion which is Rs.500 billion higher than the budget estimates.

Finance secretary T V Somanathan has assured that the Centre will not compromise on its budgeted capital expenditure plan for 2022-23. The government has budgeted for capital expenditure of Rs.7.5 trillion for 2022-23, 26.6 per cent higher than last year. The finance secretary has also expressed the government’s intent to make every effort to cut its avoidable revenue expenditure to accommodate the additional subsidy burden.

We believe that the government will more or less stick to its budgeted capital expenditure for 2022-23. It may succeed in trimming down the revenue expenditure other than subsidies and interest payments by Rs.250 billion. The government thereby will be able to arrest the possible rise in its total expenditure over the budget estimate at Rs.1.35 trillion. Nearly half of this excess expenditure will be financed through the additional non-debt receipts of Rs.500 billion that the government is likely to garner over its budget estimates. For financing the balance expenditure of Rs.800 billion, the government will likely have to rely on additional debt receipts.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
8.0 +1.3
Consumer Sentiments Index
Base September-December 2015
68.4 +0.8
Consumer Expectations Index
Base September-December 2015
67.6 +0.9
Current Economic Conditions Index
Base September-December 2015
69.7 +0.7
Quarterly CapEx Aggregates
(Rs.trillion) Jun 21 Sep 21 Dec 21 Mar 22
New projects 2.94 3.26 3.53 5.91
Completed projects 0.71 1.28 2.76 1.15
Stalled projects 0.33 0.28 0.06 0.30
Revived projects 1.14 0.39 2.07 0.28
Implementation stalled projects 0.64 0.26 0.65 0.07
Updated on: 25 Jun 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Jun 21 Sep 21 Dec 21 Mar 22
All listed Companies
 Income 42.3 27.5 23.4 21.6
 Expenses 41.8 26.7 21.3 20.5
 Net profit 140.6 55.3 35.4 32.8
 PAT margin (%) 8.9 9.6 9.0 9.1
 Count of Cos. 4,564 4,690 4,733 4,508
Non-financial Companies
 Income 61.1 35.7 29.1 25.9
 Expenses 62.4 36.0 28.8 26.6
 Net profit 195.2 59.5 19.0 12.9
 PAT margin (%) 8.4 8.8 7.5 7.9
 Net fixed assets 4.9 2.2
 Current assets 10.8 15.3
 Current liabilities 0.8 11.7
 Borrowings 12.1 3.7
 Reserves & surplus 12.4 11.5
 Count of Cos. 3,336 3,387 3,428 3,280
Numbers are net of P&E
Updated on: 25 Jun 2022 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.1 13.6
 Expenses 0.4 -3.4 10.5
 Net profit -4.4 72.2 58.0
 PAT margin (%) 2.0 4.5 10.9
 Assets 9.0 9.7 9.3
 Net worth 4.8 11.7 9.9
 RONW (%) 3.4 6.9 13.5
 Count of Cos. 32,455 29,998 539
Non-financial Companies
 Income -1.2 -2.3 26.3
 Expenses -1.0 -4.4 25.6
 Net profit -20.8 63.5 42.2
 PAT margin (%) 2.2 4.2 13.8
 Net fixed assets 11.2 2.0 -1.9
 Net worth 2.2 10.7 11.2
 RONW (%) 4.7 8.0 22.6
 Debt / Equity (times) 1.2 1.0 0.3
 Interest cover (times) 1.9 2.5 10.3
 Net working capital cycle (days) 81 85 16
 Count of Cos. 25,743 23,675 386
Numbers are net of P&E
Updated on: 20 Jun 2022 11:46AM