Higher tax revenues will enable the government to minimise additional borrowing requirements, despite a fiscal expansion of close to Rs 2 trillion over the FY23 Budget estimate, provided no significant further relief measures are rolled out, analysts said.
The total additional expenditure is seen about Rs 2 trillion on account of higher subsidies on fertilisers, free grains scheme and LPG subsidy for Ujjwala beneficiaries in FY23. The excise duty cuts on auto fuels on Saturday would result in a revenue loss of about Rs 85,000-90,000 crore during the little over 10 months left in the current fiscal.
“We estimate that the nominal GDP growth in FY23 may be above 15% as compared to the budget assumption of 11.1%. The tax buoyancy may also turn out to be higher against the budgeted assumption of 0.9. Using a buoyancy for Centre’s gross tax revenues at 1.2 and a nominal GDP growth of 15%, growth in the Centre’s GTR may be nearly 18%,” said DK Srivastava, chief policy advisor, EY India.
This may result in an additional tax revenue collection of about Rs 2 trillion over and above the Budget estimates, Srivastava said.
The extra tax revenues could be used for the additional relief in fertiliser subsidies. “The need for additional borrowing in FY23 depends on the choices that the government makes as the fiscal year progresses. If global crude prices also come down marginally, the ongoing inflationary trends may be less of a problem. We anticipate only a marginal slippage in the budgeted fiscal deficit target of 6.4% of GDP,” Srivastava said.
In the event of no more significant shocks to the economy in the rest of the year, additional revenue will be able to absorb the excise cut and subsidy, said India Ratings chief economist DK Pant. “However, if there are more shocks than the additional borrowing requirement will depend on the magnitude of government intervention,” Pant added.
Direct tax and GST buoyancy have been strong, and if the two continue at the same clip as last year, the overall fiscal slippage could be about 0.2% of GDP (from the baseline budgeted fiscal deficit target of 6.4% of GDP for FY23), according to HSBC India economists Pranjul Bhandari and Aayushi Chaudhary.
“But because nominal GDP in itself is likely to be higher than budgeted (led by a higher deflator), the rise in the fiscal deficit in rupee terms could be high at around `1.5 trillion more than budgeted, if no other expenditure cuts are made,” the HSBC economists said.
According to HDFC Bank economists, the fiscal deficit to rise to 6.8% of GDP in FY23 leading to a slippage of Rs 1.6 trillion compared to the BE. “It’s still early days to predict whether this could mean extra market borrowings (current gross market borrowings at Rs 14.31 trillion for FY23) or could be financed through alternative sources (e.g. small savings fund),” the HDFC economists said in a note.
Of course, the government’s final fiscal math would also depend on whether tax collections are significantly higher than expected and if the government chooses to adjust other revenue expenditures to offset the rise in the subsidy bill or cuts down on the capex, they added.
A top government official told FE that the slew of indirect tax cuts announced on Saturday to contain inflation would require the Centre to calibrate revenue expenditure besides moderately increasing its borrowings in FY23.