Fiscal Deficit Soars: Indian Government's Q1 Gap at 25.3% of FY24 Target!

The Indian government's fiscal deficit has surged to Rs 4.51 lakh crore in the first quarter of the current financial year (April-June 2023), accounting for 25.3 per cent of the full-year target of Rs 17.87 lakh crore. This substantial increase comes after a significant dividend from the Reserve Bank of India (RBI) in May, which helped limit the fiscal deficit to 11.8 per cent of the annual target during April-May.

Data released by the Controller General of Accounts on July 31 reveals that the fiscal deficit for the same period last year (2022-23) was 21.2 per cent of the target, indicating a notable year-on-year growth of 28.3 per cent. Furthermore, the fiscal deficit in June alone saw a staggering 62.9 per cent increase compared to the previous year.

Factors Behind the Surge

The sharp rise in fiscal deficit during April-June is primarily attributed to a drop in receipts and a surge in expenditure. In June, the Centre's total receipts were down by 14.3 per cent year-on-year, with net tax revenue experiencing a significant decline of 21.5 per cent at Rs 1.56 lakh crore. This reduction in tax revenue was caused by the transfer of a double instalment of tax devolution to states, amounting to Rs 1.18 lakh crore.

On the brighter side, gross tax collections witnessed an 11.3 per cent increase in June compared to the same month last year, reaching Rs 2.75 lakh crore. However, corporate tax collections continued to flounder, declining by 0.4 per cent from June 2022, amounting to Rs 81,972 crore.

Capital Expenditure Push

The Indian government has been actively focusing on boosting economic growth by pushing for higher capital expenditure (capex). In June, the Centre's capex witnessed a substantial jump of 62.8 per cent, reaching Rs 1.11 lakh crore. For the entire April-June period, the total capex amounted to Rs 2.78 lakh crore, nearly 28 per cent of the ambitious full-year target of Rs 10 lakh crore.

Correspondingly, the Centre's total expenditure in June surged by 17.3 per cent to Rs 4.25 lakh crore. For April-June, the overall spending reached Rs 10.51 lakh crore, which is 10.8 per cent higher than the spending during the same period in 2022.

Fiscal Target and Outlook

Despite the significant rise in fiscal deficit in June, experts are optimistic that the Centre will be able to meet its fiscal deficit target for the fiscal year 2023-24. The government aims to reduce the fiscal deficit to 5.9 per cent of the GDP in 2023-24, as part of its medium-term goal of achieving a deficit of 4.5 per cent by 2025-26. Aditi Nayar, ICRA's chief economist, commented that fiscal concerns "appear limited" at this stage.

The surge in the Centre's fiscal deficit during the first quarter of the financial year has been driven by a mix of factors, including lower receipts in June and increased expenditure. However, the government's focus on capital expenditure indicates a commitment to boosting economic growth, potentially helping to achieve its fiscal deficit targets for the current fiscal year. As the year progresses, policymakers will need to monitor the economic situation closely to maintain a sustainable fiscal trajectory.