Aided by a strong show on both tax and non-tax revenues, the Centre’s fiscal deficit for the first eleven months (up to February 28)  came in at ₹13.17-lakh crore, which is 82.7 per cent of the revised estimate fiscal deficit projection of ₹15.91-lakh crore for 2021-22.

At the same stage last fiscal, the Centre’s fiscal deficit — as a percentage of revised estimate — was 76 per cent, according to the latest data from the Controller General of Accounts (CGA).

Given the buoyancy in the Centre’s tax and non-tax revenues in 2021-22 and the likely undershoot of capital expenditure (which may absorb the shortfall in disinvestment receipts), the overall fiscal deficit for the current fiscal is expected to be maintained below the revised estimate of ₹ 15.91-lakh crore or only see a modest overshoot, said economy watchers. 

Till February-end this fiscal, the Centre has achieved only 80 per cent of budgeted capex, and the target of ₹6-lakh crore may not be attained as March has been a month where there has been preoccupation with the war impact, said Madan Sabnavis, Chief Economist at Bank of Baroda.

The fiscal deficit at 83 per cent of the budgeted amount leaves scope for expansion in March 2022 without any additional borrowing being incurred even if it is exceeded, Sabnavis noted.

Tax revenue at 84 per cent of Budget is lower than that of last year. However, post March 15, there would have been a pick-up in tax collections and, hence, the target will be achieved, according to Sabnavis.

“On the whole the fiscal deficit target would not be breached and there could be an upside of savings — lower fiscal deficit, albeit marginal if capex is cut. The shortfall in disinvestment will be made up by higher tax revenue and probably savings on expenditure”, he said.

In April-January 2021, the Centre’s fiscal deficit stood at ₹9.37-lakh crore, which was 58.9 per cent of the budgeted fiscal deficit of ₹15.91-lakh crore.

The widening in Centre’s fiscal deficit between January 2022 and February 2022 could be explained by the release of a massive ₹2.4-lakh crore as central tax devolution to the States in February, by far the largest monthly release. This has precipitated the decline in the GoI’s cash balance, said Aditi Nayar, Chief Economist at rating agency ICRA.

With ₹1.2-lakh crore left to be spent in March 2022, it appears unlikely that the capex target of ₹6.0-lakh crore included in the FY22 RE will be met, she added.

“On balance, we currently expect a modest overshoot of the GoI’s fiscal deficit by around ₹ 0.5 lakh crore in FY2023, in an admittedly evolving situation. Regardless, with a higher nominal GDP in FY2023, the fiscal deficit may remain similar to the budgeted target of 6.4 per cent of GDP,” said Nayar.

The Centre’s budgeted fiscal deficit of 6.4 per cent of GDP for FY23 is likely to be adversely affected on account of potential excise duty cuts, high fertiliser and food subsidies and compressed growth in direct taxes, given squeezed corporates’ profit margins. However, modest nominal GDP growth and tax buoyancy assumptions, and the spillover of the LIC IPO to FY23 would provide some cushion, she added.

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