India's April-June Fiscal Deficit Reaches 25.3% Of Full-Year Target

In absolute terms, fiscal deficit stood at Rs 4,51,370 crore versus a budgeted estimate of Rs 17.9 lakh crore for the full year.

<div class="paragraphs"><p>A lady holding Rs 500 Indian banknote for photograph.&nbsp;(Photo: Usha Kunji/BQ Prime)</p></div>
A lady holding Rs 500 Indian banknote for photograph. (Photo: Usha Kunji/BQ Prime)

The central government's fiscal deficit for the first quarter of fiscal 2024 has reached 25.3% of the full year's budgetary estimate.

In absolute terms, the fiscal deficit stood at Rs 4,51,370 crore, against the budgeted estimate of Rs 17.9 lakh crore for the financial year, according to data released by the Controller General of Accounts on Monday.

The deficit was at Rs 3.5 lakh crore in the first quarter of the previous fiscal. The increase this year can be attributed to increased capital expenditure spend and tax devolution to the state governments. 

Net tax revenue till June came in at Rs 4,33,620 crore, accounting for 18.6% of the full-year tax target of Rs 23.3 lakh crore. Non-tax revenue stood at Rs 1,54,968 crore, or 51.4% of the annual target, a smaller monthly increase from May which benefited on account of the RBI dividend surplus of Rs 87,000 crore received by the government.

The revenue deficit for the same period has come in at Rs 1.83 lakh crore of the Rs 8.7 lakh crore budgetary estimate, representing 21.1%.
Notably, the revenue deficit has also risen by Rs 1,38,104 crore in the month of June.

With fiscal concerns appearing limited and the MPC unlikely to raise policy rates in the upcoming policy review, despite the anticipated food item-led surge in the July 2023 CPI inflation, we expect the 10-year G-Sec to range between 7.0-7.2% in the near term.
Aditi Nayar, Chief Economist, Head of Research and Outreach, ICRA Ltd.

Experts said that the higher-than-budgeted dividend surplus transfer is expected to ease any reduction in revenue and cover any overshoot of expenses from the budget.

ICRA estimates that the outgo under MGNREGA in FY24 will likely exceed the budget estimate by Rs 250-300 billion, or Rs 25,000-30,000 crore.

The government's budgetary target for MGNREGA is Rs 60,000 crore, an estimate lower than the actual spending incurred last year on the back of reasoning that there is an increased outlay for Jal Jeevan Mission and the PMAY programme, which could provide employment.

"In the four months of FY24, more than 70% of the budgeted amount or Rs 0.45 trillion (up to July 28) has already been spent, indicating that additional allocations may be made though the supplementary demand for grants," Nayar said.  

Rise In Capex Spend, Subsidies

The central government's total expenditure till June stood at Rs 10,50,661 crore, or 23.3% of the expenditure estimated for the year at Rs 45.03 lakh crore. Of this, capital expenditure stood at Rs 2,78,480 crore, jumping to 27.8% of the yearly estimate. It rose by Rs 1,10,691 crore from the previous month.

Out of the total expenditure, Rs 87,035 crore was on account of major subsidies, and the spend on fertiliser and fuel subsidies rose significantly as compared with the previous month. Rs 16,035 crore was spent on nutrient-based fertiliser subsidies, off its budgetary target of Rs 44,000 crore, representing a 36% spend. Meanwhile, the urea subsidy as of June 2023 stood at Rs 29,077 crore out of its Rs 1,31,099 crore limit.

The month also saw a spend on petroleum of Rs 388.61 crore, marking the first outgo for petroleum subsidy in the ongoing fiscal.

Out of the revenue expenditure of Rs 7.72 lakh crore, Rs 2.43 crore was on account of interest payments.

Corporate Tax Continues Its Slump 

According to data, the gross tax revenue relative to June rose by Rs 2,74,929 crore, slightly higher than the collections over the corresponding period last year. However, a contraction in corporate taxes continued, which offset the growth from other revenue sources like GST collections and private income tax.

"With a double installment released in June 2023, central tax devolution rose to Rs. 2.4 trillion (Rs 2.4 lakh crore) in Q1 FY24 from Rs 1.4 trillion in Q1 FY23, contributing to the YoY contraction in net tax revenues," Nayar said.

"In July 2023, the government released an additional Rs 729 billion (Rs 72,900 crore) as tax devolution, bringing the aggregate amount for this fiscal so far to Rs 3.1 trillion, a huge 54% higher than April-July FY23, and about 30% of the FY24 budget estimates."

To meet this, the government would have to release Rs 7.1 lakh crore to the states in a staggered manner in the next eight months, which would contain any incremental fiscal deficit in some of the ensuing months, according to her.