Additional spending unlikely to strain fiscal math

by Manasi Swamy

The Ministry of Finance has sought Parliamentary nod for an additional net cash outgo of Rs.3.26 trillion for 2022-23. On December 9, 2022, the ministry tabled the first batch of supplementary demands for grants of the gross amount of Rs.4.36 trillion. It informed the Parliament that it planned to meet about Rs.1.1 trillion of this additional expenditure through savings by various ministries/departments or by enhanced receipts/recoveries.

The ministry had budgeted for only a four per cent increase in government expenditure to Rs.39.4 trillion for 2022-23 at the beginning of the fiscal. Government expenditure for the current fiscal would go up to Rs.42.7 trillion after the fresh demands. This implies a 12.6 cent rise in expenditure over 2021-22. In real terms, this means a 5.5-6 per cent increase in public spending during 2022-23. This is far better than the 4 per cent expenditure growth initially budgeted for, which in real terms meant a 1.5-2 per cent contraction in government expenditure during 2022-23.

This contribution to growth coming from the additional government expenditure is valuable, particularly when the Indian economy is facing significant external headwinds and the private corporate sector is reluctant to go for large capital expansions.

Two third of the additional resource allocation sought through the demands for grants is towards financing subsidies on food, fertilisers and petroleum oil.

The finance ministry has sought Rs.1.09 trillion for fertiliser subsidy, over and above the budgetary provision of Rs.1.05 trillion. About Rs.250 billion have been sought to compensate Oil Marketing Companies (OMCs) for the losses incurred by them on sale of subsidised LPG and for providing LPG connections to poor households under the Pradhan Mantri Ujjwala Yojana (PMUY). The ministry has sought Rs.803.5 billion on behalf of the Department of Food and Public Distribution. Of this, Rs.601.1 billion is for extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) till December 2022 and Rs.99.6 billion is for Decentralised Procurement of Foodgrains under NFSA.

Total subsidy outgo in 2022-23 is now expected to rise by 16.9 per cent, as against a 27.1 per cent contraction accounted for in the Union Budget. The subsidy bill for 2022-23 now works out to a huge Rs.5.5 trillion. This is second to only the Rs.7.5 trillion subsidy outgo of 2020-21 which included a one-time settlement of FCI’s borrowings from NSSF of Rs.3.4 trillion and clearance of the dues of fertiliser companies.

A sum of Rs.278.8 billion has been sought for additional expenditure by the Ministry of Rural Development on rural employment generation. A bulk of this amount is to be spent on the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) and Pradhan Mantri Awas Yojana - Rural (PMAY-R). The ministry had exhausted about 64 per cent of its budgeted expenditure allocation of Rs.1.38 trillion for 2022-23 by October.

The supplementary demands for grants includes Rs.100 billion as transfer to GST compensation fund for giving compensation to states and union territories (UTs) and Rs.181.3 billion for providing viability gap funding to BSNL.

Net additional cash outgo under the supplementary demand for grants on revenue expenditure is Rs.2.95 trillion. An additional amount of Rs.310.5 billion has been sought for capital expenditure. Of this, Rs.120 billion is for the Ministry of Railways and Rs.149.8 billion is for the Ministry of Road Transport & Highways. The two ministries also accounted for a bulk of the capital expenditure budgeted for 2022-23 and have been utilising these funds aggressively. The Ministry of Railways utilised 93 per cent of its annual capital outlay by October 2022, while the Ministry of Road Transport & Highways exhausted 78 per cent.

The Union Budget 2022-23 had accounted for an all-time high capital expenditure of Rs.7.5 trillion. After inclusion of the funds sought under the supplementary demands for grants, it goes up to Rs.7.8 trillion. This is a robust 32.1 per cent growth over capital expenditure incurred in 2021-22.

In spite of the supplementary demands for grants, the government seems to be a sound position on the fiscal deficit front in the current fiscal because of tax buoyancy.

We believe that the government would be able to finance a bulk of the additional expenditure for 2022-23 through higher than budgeted tax collections. We estimate the government to garner net tax receipts of Rs.21.9 trillion as against the budget estimate of Rs.19.3 trillion. The Rs.2.5 trillion excess tax collection is expected to come majorly in the form of income tax, corporation tax and goods & services tax (GST). After about Rs.150-200 billion slippage in achieving both its non-tax revenue and disinvestment target, we expect the government’s fiscal deficit to exceed the budgeted target by around Rs.1 trillion. As proportion of GDP, however, the deficit will be within the budgeted target of 6.4 per cent as GDP. The GDP too is expected to grow at a faster clip than budgeted due to higher inflation.

The government seems to be in a position to finance the excess fiscal deficit of Rs.1 trillion comfortably through liquidation of its cash balances with the Reserve Bank of India (RBI). The Central Government had Rs.3.2 trillion parked in deposits with the RBI as of October 2022. Also, it has already tapped the National Small Saving Fund and availed Rs.1.1 trillion during April-October 2022, which was not accounted for in the Union Budget 2022-23.

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.1 -0.1
Consumer Sentiments Index
Base September-December 2015
84.6 -0.2
Consumer Expectations Index
Base September-December 2015
83.7 0.0
Current Economic Conditions Index
Base September-December 2015
86.0 -0.5
Quarterly CapEx Aggregates
(Rs.trillion) Mar 22 Jun 22 Sep 22 Dec 22
New projects 8.68 5.20 4.42 6.68
Completed projects 1.33 1.18 1.36 1.61
Stalled projects 0.43 0.53 0.07 0.01
Revived projects 0.33 0.29 0.12 0.32
Implementation stalled projects 0.09 0.29 0.26 0.11
Updated on: 05 Feb 2023 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 22 Jun 22 Sep 22 Dec 22
All listed Companies
 Income 20.8 40.1 25.2 19.8
 Expenses 19.8 41.4 27.1 20.6
 Net profit 31.6 21.1 -1.4 5.7
 PAT margin (%) 8.8 7.2 7.8 9.9
 Count of Cos. 4,686 4,704 4,578 1,301
Non-financial Companies
 Income 24.8 50.1 27.9 18.5
 Expenses 25.7 52.9 31.5 20.5
 Net profit 10.1 8.4 -21.0 -12.7
 PAT margin (%) 7.6 5.7 5.7 7.1
 Net fixed assets 2.0 4.1
 Current assets 15.0 19.1
 Current liabilities 11.7 10.4
 Borrowings 3.5 12.8
 Reserves & surplus 11.2 7.6
 Count of Cos. 3,398 3,424 3,371 944
Numbers are net of P&E
Updated on: 05 Feb 2023 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.4 26.0
 Expenses 0.3 -3.6 24.9
 Net profit -3.0 74.5 63.3
 PAT margin (%) 2.0 4.5 7.2
 Assets 8.9 10.7 9.9
 Net worth 4.8 12.0 14.0
 RONW (%) 3.4 6.9 11.5
 Count of Cos. 31,839 30,688 14,155
Non-financial Companies
 Income -1.1 -2.5 30.7
 Expenses -0.9 -4.4 30.4
 Net profit -20.5 62.4 61.3
 PAT margin (%) 2.3 4.0 6.2
 Net fixed assets 11.4 2.4 2.1
 Net worth 2.1 10.6 14.5
 RONW (%) 4.7 7.6 12.7
 Debt / Equity (times) 1.1 1.0 0.8
 Interest cover (times) 1.9 2.5 4.0
 Net working capital cycle (days) 73 82 59
 Count of Cos. 25,106 24,021 11,477
Numbers are net of P&E
Updated on: 04 Feb 2023 5:32PM