Lower nominal GDP growth may lead to fiscal deficit target being breached: Experts

Even as the Centre’s fiscal deficit came in at just 50.7% of its full year target by end November 2023, it may marginally exceed the full year target of 5.9% of the GDP. According to analysts, the fiscal deficit may be closer to 6% in FY24 due to lower than anticipated nominal GDP growth. 

“Government is likely to achieve its FY24 fiscal deficit target in level terms, however, slower nominal GDP growth may push fiscal deficit in ratio term to 6% of GDP,” said Devendra Kumar Pant, Chief Economist & Senior Director – Public Finance, India Ratings and Research.  

The pressure points on FY24 fiscal deficit originates from disinvestment and revenue expenditure, he said. India Ratings estimates suggests that the revenue receipts of the union government’s revenue receipts in FY24 is likely to be Rs 1.9 lakh crore, including tax revenue of Rs 1.2 lakh crore and non tax revenue of 0.7 lakh crore. This will be higher than the Budget estimate for FY24 but revenue expenditure is likely to be higher by Rs 2.1 lakh crore.  

ICRA also said that a lower nominal GDP than what the Union Budget had pencilled in, could result in the fiscal deficit printing at 6% of GDP.  

“Overall, ICRA does not expect the fiscal deficit target of Rs 17.9 lakh crore for FY2024 to be breached,” said Aditi Nayar, Chief Economist, Head Research and Outreach, ICRA Ltd.  

The agency expects that direct taxes will surpass the FY2024 BE by around Rs 0.85 lakh crore, a portion of which will be absorbed by lower-than-budgeted union excise duty collections, leaving a gross upside of at least Rs 0.5 lakh crore. “Setting aside the additional devolution to the states, we estimate that net tax revenues will exceed the FY2024 BE by a modest Rs 0.3-0.4 lakh crore. However, this will be offset by a similar shortfall in disinvestment proceeds,” Nayar further said. 

According to data released by the Comptroller General of Accounts on Friday, the Centre’s fiscal deficit amounted to Rs 9,06,584 crore between April and November 2023, which was 50.7% of its Budget estimate. The fiscal deficit was higher at 58.9% of the full year target in the same period a year ago. 

Revenue receipts came in at Rs 17.2 lakh crore, which was 65.3% of the full year target. While direct tax collections remained robust at Rs 14.3 lakh crore or 61.6% of the BE, non debt capital receipts amounted to just 30% of the BE by November end 2023. Disinvestment proceeds amounted to just Rs 8,858.55 crore or 17% of the BE of Rs 51,000 crore by November end 2023. 

While total expenditure was Rs 26.5 lakh crore or nearly 59% of the BE, the pace of capital expenditure seems to have slowed down. The Centre’s capital expenditure stood at Rs 5.85 lakh crore or 58.5% of the BE of Rs 10 lakh crore. 

Analysts believe that it could slow down further in the coming months ahead of the General Elections. “In the month of November 2023, capex rose by a meagre sub-2% on a YoY basis, amidst the festive season. With the model code of conduct likely to be imposed in the ensuing quarter, the capex target may be missed,” said Nayar.