Higher tax and non-tax revenue collections this fiscal are expected to more than offset the shortfall in disinvestment revenue, leading to the fiscal deficit coming in at 6.6 per cent of GDP in FY22, 20bp lower than budgeted, according to India Ratings and Research’s (Ind-Ra) estimation. The data relating to the union government finances show that tax collections so far have immensely benefitted both from growth and inflation.

While the GDP growth is benefitting due to the lower base of FY 2021, higher inflation (GDP deflator) has led to the economy registering higher nominal GDP growth and thus helping higher tax collections. The GDP deflator growth in 1QFY22 was highest at 9.7 per cent and second highest at 8.4 per cent in 2QFY22 in the quarterly series of 2011-12 base. As a result, the nominal GDP growth came in 31.7 per cent in 1QFY22 and 17.5 per cent in 2QFY22.

The share of direct tax in the expected additional gross tax revenue collection works out to be 44.7 per cent and that of indirect tax 55.3 per cent. On the whole, the share of direct taxes in the gross tax revenue of FY22 is expected to increase to 48.9 per cent in FY22 from 45.8 per cent in FY21, as per the report.

Higher tax and non-tax revenue collections this fiscal are expected to more than offset the shortfall in disinvestment revenue, leading to the fiscal deficit coming in at 6.6 per cent of GDP in FY22, 20bp lower than budgeted, according to India Ratings and Research’s (Ind-Ra). Tax collections so far have immensely benefitted both from growth and inflation.

Like tax revenue, even the non-tax revenue is expected to come in higher than the budgeted figure in FY22. Non-tax revenue is forecasted to reach ₹3.1 trillion in FY22 as against the budgeted ₹2.4 trillion (FY21 (RE): ₹2.1 trillion). Non-tax revenue collections of ₹2.1 trillion during April-October 2021 grew at 78 per cent yoy and were 85.1 per cent of the FY22 budgeted amount.

However, capital receipts are lagging and despite growing 20.3 per cent YoY during April-October 2021 were only 10.5 per cent of the FY22 budgeted amount. If the first seven months of FY22 is an indication, then once again the disinvestment target of ₹1.75 trillion will be missed by a big margin. Till October 2021, the total disinvestment proceeds have been just ₹93.64 billion, which is only 5.4 per cent of the target.

On the expenditure front, the union government has brought in two supplementary demands for grants – one for ₹236.75 billion and the other one for ₹2.992.43 billion after the presentation of general budget on 1 February 2021. This will lead to total expenditure commitments of ₹38.1 trillion in FY22 (revenue expenditure: ₹31.8 trillion and capital expenditure: ₹6.2 trillion).

Ind-Ra’s estimates suggest that the final revenue expenditure will be ₹2.8 trillion higher than FY22 budgeted revenue expenditure and ₹216 billion higher than the proposed FY22 revenue expenditure (budgeted plus two supplementary demand for grants), despite low expenditure by few ministries/ departments.

Out of 101 demands for grants for various ministries/departments, seven ministries/departments have spent less than 20 per cent of their FY22 budgeted amount till end-October 2021. Another 21 ministries/departments have spent between 20-40 per cent of their budgeted expenditure for FY22. The total budget (revenue and capital) of these 28 ministries/ departments in FY22 is ₹5.5 trillion and combined expenditure in the first seven months was only ₹874.5 billion.

Fibre2Fashion News Desk (KD)