With Nominal Gross Domestic Product (GDP) being estimated to grow at faster rate than the Budget Estimate (BE), the Government has got the room to spend around ₹86,000 crore more without changing the fiscal deficit, say research agencies.
Another option could be to achieve lower deficit without additional expenditure than the BE.
In the first advance estimate for FY23, the National Statistical Office (NSO) said that Nominal GDP or GDP at current prices in the year 2022-23 is estimated at ₹273.08-lakh crore against the provisional estimate of GDP for the year 2021-22 of ₹236.65-lakh crore, released on May 31, 2022. The growth in nominal GDP during 2022-23 is estimated at 15.4 per cent compared with 19.5 per cent in 2021-22.
In the Budget 2022,, GDP for FY23 was projected at ₹258-lakh crore assuming 11.1 per cent growth over the estimated GDP of ₹232.14-lakh crore for 2021-22 (RE). Based on that, fiscal deficit for FY23 was estimated at 16.6 lakh crore or 6.4 per cent of GDP. Now, since the base has been revised, there is scope for higher expenditure without tinkering with deficit ratio.
Monthly data from Controller General of Accounts (CGA) indicates that overall expenditure has already reached 61.9 per cent of the BE (Budget Expenditure) in April-November, with revenue expenditure at 62.5 per cent of BE and capital expenditure at 59.6 per cent of BE. The capital expenditure is much higher than the expenditure last year, which may be due to the capex loans to states. Meanwhile, net tax revenue at ₹12.24-lakh crore was 63.3 per cent of BE 2022-23. Non-tax revenue was at ₹1.98-lakh crore or 73.5 per cent of BE.
Ecowrap report
The research report of SBI Ecowrap, says with the moderate growth in tax revenues and rise in expenditures, it was expected that the Fiscal Deficit (FD) will shoot-up marginally. However, “taking into account the revised GDP figures of today, if tax receipts grew by the BE, then Government has a space of around ₹85,939 crore without changing the FD target of 6.4 per cent of the GDP in FY23. While, if Government sticks to the FD of ₹16.6-lakh crore, then with the revised GDP numbers the deficit as a percentage of GDP would be at 6.1 per cent,” it said.
The government has already got approval for fresh expenditure of over ₹3-lakh crore from the Parliament. Still, expectation is that savings from various Ministries will help to limit the deficit despite higher expenditure.
This explanation also got support from India Ratings & Research (Ind-Ra). Its Principal Economists Sunil Kumar Sinha and Analyst Paras Jasrai say, “the first advanced estimate of FY23 GDP will cheer the government since the nominal GDP and in turn tax revenues are going to be much higher than budgeted and would provide adequate fiscal headroom to achieve the fiscal deficit target.”
Further, the SBI report said that for FY24, the fiscal consolidation should remain limited to 30-40 bps from the current fiscal. This means next year target could be 6 per cent or even less than that.