InvestorQ : How did the Indian economy record fiscal surplus in the current year?
swati Bakhda made post

How did the Indian economy record fiscal surplus in the current year?

Sam Eswaran answered.
1 month ago

Let me clarify that this is not a fiscal surplus for the current year. It is only a fiscal surplus for the month of July 2022. On a yearly basis, India will still show a fiscal deficit. In July 2022, India reported revenue surplus and fiscal surplus. It is after a gap of 28 months that India has reported fiscal surplus in any month. For July 2022, the fiscal surplus stood at Rs11,040 crore while the revenue surplus stood at Rs42,509 crore. You can look at these two figures as the inverse of the fiscal deficit and the revenue deficit respectively.

As a result of this surplus in July, the cumulative fiscal deficit for the first 4 months of FY23 ended July 2022 fell from 21.3% at the end of June to 20.5% at the end of July. The July surplus in July 2022 was on account of higher net tax revenues and the gradual tapering of revenue expenditure. However, the centre did balance priorities by ensuring that the capital allocations were not negatively impacted. This dual impact managed to reduce the fiscal gap without impacting long term output. However, now government will be paying big refunds.

Let us understand this better by looking at the expenditure side. The centre emphasized capital spending while cutting down on revenue spending. If we focus on capital spending for July 2022, it has doubled yoy to Rs33,606 crore. For the 4 months of FY23 ending July 2022, total capital spending rose 62% yoy at Rs2.09 trillion. However, revenue spending was down by 14% in July 2022. Hence, it led to a 2% fall in overall spending. This was largely instrumental in bringing the deficit to a surplus on the fiscal account for July 2022

For the first four months ended July 2022, net tax revenues were up by a healthy 26% which is much higher than the budgeted 6% growth. The good news is that if this trend holds then final tax revenues should be much better than the full year tax revenue target of Rs19.35 trillion. The centre has touched 34.4% of the budget estimate of tax revenues in the first 4 months of FY23 itself. It is now estimated that full year tax revenues could be higher by Rs1.70 trillion enabling the government to end fiscal year FY23 at around Rs Rs21 trillion.