InvestorQ : Is it true that India ended with lower fiscal deficit for full year FY22?
Aditi Sharma made post

Is it true that India ended with lower fiscal deficit for full year FY22?

Mahima Roy answered.
1 year ago

Thanks to improved tax collections in the last quarter of FY22, the eventual fiscal deficit in percentage terms was just 6.7% of GDP. This is as against 6.9% of GDP pegged in the Union Budget 2022 announced in February. The improved revenue flows into the government coffers ensured that there was a smaller gap to worry about. Ironically, this was despite the lower than expected flows on the divestment front.

As per data put out by the Controller General of Accounts (CGA) for FY22, fiscal deficit for FY22 in absolute rupee terms stood at Rs15,86,537 crore. This is slightly lower than the budget target of Rs15,91,089 crore fiscal deficit. This led to the fiscal deficit as a percentage of GDP tapering from 6.9% of GDP to 6.7% of GDP. While the fall is not really material, it is a feel good factor for the markets overall.

As per Controller General of Accounts (CGA), tax receipts were Rs18.2 trillion as compared to the budgetary revised estimates (RE) of Rs17.65 trillion. One could see evidence of higher GST and direct tax collections in the fourth quarter. For FY22, the revenue deficit (borrowing for morning breakfast) for FY22 stood at 4.37%. For FY23, the CGA expects the fiscal deficit to touch 6.4% of GDP or approximately Rs16.61 trillion.

Normally, the higher fiscal deficit means higher borrowings since the government normally meets its fiscal gap through domestic borrowings. However, one can also expected better GST collections in the year on the back of better economic activity and better compliance. The government has tightened screws on defaulters. In addition, fiscal deficit also benefited from the lower allocations to capital spending last year.

However, with the government sinking billions of dollars into the fight against inflation, the original estimate for fiscal deficit for FY23 of 6.4% has now been scaled up by 50 bps to 6.9%. It looks like the government is willing to draw out a blank cheque to contain inflation at all costs. That will be visible in the coming months.