Fiscal Deficit To Slide To 6.6% In 2021-22 Due To Under-Spending By Ministries: Report
A research report has suggested that the government may miss the fiscal deficit target by 20 basis points (bps) for the current fiscal year (2021-22) to 6.6 per cent mainly on account of strong overall revenue collections . Less spending by many ministries.
The India Ratings report echoed sentiments raised by the Reserve Bank of India (RBI) in its Financial Stability Report on Wednesday, where it said the government will miss the budgeted fiscal deficit target of 6.8 per cent for 2021-22.
India Ratings, however, said additional spending will be planned as revenue increases.
Higher tax and non-tax revenue collections this fiscal are expected to more than offset the potential shortfall in disinvestment revenue, leaving the fiscal deficit at 6.6 per cent of GDP, 20 bps short of the budget, the rating agency said.
Government finances show that tax collections so far have benefited immensely from both growth and inflation. While GDP growth is benefiting from the low base effect, high inflation (GDP deflator) has ushered the economy into higher nominal growth, which in turn is helping in higher tax collections.
The GDP deflator growth was highest at 9.7 per cent in Q1FY22 and was second at 8.4 per cent in the second quarter. As a result, nominal GDP growth stood at 31.7 per cent in Q1 and 17.5 per cent in Q2, the report said.
The agency has estimated the gross tax revenue collection for this fiscal at Rs 5.9 lakh crore – which is higher than the budgeted figure. The share of corporation tax in the total tax collection will be 28.4 percent, income tax 16.3 percent, GST 14.7 percent, customs duty 14.2 percent, excise duty 2.4 percent and others 3.9 percent.
Accordingly, the share of direct taxes in the expected additional gross tax collection would be 44.7 per cent and indirect taxes would be 55.3 per cent. Overall, the share of direct taxes in gross tax revenue is expected to increase to 48.9 per cent in 2021-22 from 45.8 per cent in 2020-21, according to the report.
The agency also expects non-tax revenue collections to exceed budget in 2021-22 as well. Non-tax revenue is estimated to reach Rs 3.1 lakh crore in this fiscal, as against Rs 2.4 lakh crore budgeted in 2020-21.
Non-tax revenue collection till October has already crossed Rs 2.1 lakh crore, up 78 per cent year-on-year. This is already 85.1 per cent of the budgeted amount.
However, capital receipts are lagging and despite growing 20.3 per cent year-on-year till October, accounted for only 10.5 per cent of the budget amount.
Amidst all this, the only disappointment is the disinvestment target of Rs 1.75 lakh crore and if the first seven months of the financial year are an indication, once again the target is only Rs 9,364 crore by a wide margin, or only 5.4 per cent. will be missed. The percentage, by now, can be felt.
On the expenditure front, the government has come out with two supplementary demands for grants – one for Rs 23,675 crore and the other for Rs 2,99,243 crore. This would lead to a total expenditure commitment of Rs 38.1 lakh crore in 2021-22 – out of which revenue expenditure would be Rs 31.8 lakh crore and capital expenditure would be Rs 6.2 lakh crore.
The India Ratings report said its projections show that the final revenue expenditure will be Rs 2.8 lakh crore higher than the budgeted number and only Rs 21,600 crore more than the proposed 2021-22 revenue expenditure – despite being low budget plus Two Supplementary Demands for Grants Expenditure by certain Ministries and Departments.