According to official data released by the Controller General of Accounts (CGA), the central government’s fiscal deficit for the financial year 2023-24 stood at Rs 2.1 lakh crore or 11.8% of the full-year budget estimates at the end of May 2023. This marks a significant improvement compared to the previous year when the fiscal deficit was 12.3% of the budget estimates.
Fiscal Deficit Declines Year-on-Year
In May 2022, the fiscal deficit was reported to be 12.3% of the budget estimates for the financial year 2022-23. However, in May 2023, the deficit narrowed to 11.8% of the budget estimates for 2023-24, showcasing the government’s efforts to manage its expenditure and revenue more efficiently.
Understanding Fiscal Deficit
Fiscal deficit represents the difference between the total expenditure and revenue of the government. It is a crucial indicator of the government’s borrowing needs. The reduction in fiscal deficit implies a decrease in the amount of borrowing required by the government to finance its operations.
Actual Fiscal Deficit at May-End 2023
In absolute terms, the fiscal deficit at the end of May 2023 was Rs 2,10,287 crore, as per the CGA data. This data indicates a positive trend towards achieving the government’s fiscal targets for the current financial year.
Non-Tax Revenue Surge Boosts Fiscal Situation
One of the key contributors to the improvement in the fiscal deficit was a significant surge in non-tax revenue, which increased by a remarkable 173%. This surge was largely driven by the dividend received from the Reserve Bank of India (RBI).
Mixed Performance of Tax Revenues
While the non-tax revenues showed robust growth, the net tax revenue experienced a contraction of 9.6% during the same period. This points to the need for continued efforts to strengthen tax collection mechanisms.
The total expenditure incurred by the central government during the first two months of 2023-24 was Rs 6.25 lakh crore, which represents 13.9% of the estimates presented in the Union Budget for the current fiscal year.
Composition of Expenditure
Out of the total revenue expenditure, a significant portion of Rs 1.1 lakh crore was allocated towards interest payments, while major subsidies received Rs 55,316 crore.
Capital Account Spending
On the capital account, the central government spent Rs 1.67 lakh crore during the period under review. This indicates a focus on investments and infrastructure development.
Economic Outlook and Future Projections
Given the encouraging fiscal deficit trends and the surge in non-tax revenues, Aditi Nayar, Chief Economist at Icra, expects fiscal concerns to remain limited. It is also predicted that the Reserve Bank of India’s monetary policy committee may not raise policy rates in the immediate term.
State Government Borrowings
However, Nayar points out that higher state government borrowings in the coming quarter could have implications for the 10-year G-sec yield, which is expected to remain in the range of 7.0-7.2% for the remainder of the first half of the fiscal year.
Devolution of Share of Taxes to States
As per the CGA data, the central government transferred Rs 1,18,280 crore to the states as their share of taxes up to May 2023, which indicates efforts to support and strengthen the finances of state governments.