Fiscal deficit contained at 83% of FY22 revised estimate

Thanks to a robust growth in non-tax revenues and lower-than-expected growth in capex, the Center contained its fiscal deficit at 82.7% of the revised estimate (RE) for FY22 in April-February, compared with 76% of the relevant RE in the year-ago period.

The Center’s net tax receipts, which grew an impressive 40% on year till January this fiscal, were up just 22% on year to Rs 14.8 trillion in April-February. This was because it transferred a massive Rs 2.4 trillion to states as their share of the divisible pool in February. Conventionally, such large adjustments happen in March, the last month of a financial year. As a result, there was a net tax outgo of Rs 66,550 crore in February this year, compared to net receipts of Rs 1.14 trillion in February 2021.

The front-loading of tax transfers was against an average devolution of Rs 54,539 crore / month for April 2021 to January 2022. The Center’s net tax receipts, which grew 40% on year till January, rose only 22% to Rs 14.8 trillion in April -February of this fiscal. Net tax receipts contracted in February 2022 with a net outgo of Rs 66,660 crore compared to a net tax receipt of Rs 1.14 trillion in February 2021. However, overall net tax receipts will likely exceed FY22RE of Rs 17.65 trillion by a decent margin as both direct and indirect tax collections are seen to be robust in March.

Non-tax receipts, from dividends / surplus transfer from the RBI, banks and CPSEs, etc, grew by a robust 101% on year to Rs 3.1 trillion in April-February. Even though total expenditure rose at a faster pace than budgeted to achieve the full-year target, capex grew 20% on year against the required 41% to meet the FY22 target. With Rs 1.2 trillion left to be spent in March, it is likely that the FY22RE capex target of Rs 6 trillion will likely be missed by a small margin.

“Overall, an upside to the Center’s tax and non-tax revenues in FY22 compared to their RE levels and a likely undershooting of the capex target may absorb the shortfall in the disinvestment proceeds, and prevent the fiscal deficit of the Center from exceeding the revised target of Rs 15.9 trillion, ”Icra’s chief economist Aditi Nayar said. India Ratings chief economist DK Pant expects FY22 fiscal deficit of 6.9% of GDP will be achieved.

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