InvestorQ : Why has SBI projected widening of the fiscal deficit for FY23?
Arti Chavan made post

Why has SBI projected widening of the fiscal deficit for FY23?

Rutuja Nigam answered.
2 weeks ago

In a recent research note put out as part of the SBI Ecowrap, authored by the SBI macroeconomic research team, the banks has pegged India’s fiscal deficit for FY23 at 6.5%. Fiscal deficit refers to the budget deficit or the shortfall that has to be me by the government through borrowings. It must be noted that the fiscal deficit projection by SBI is just about 10 bps higher than the budget estimates. While the Budget had pegged fiscal deficit for FY23 at 6.4%, SBI has pegged the deficit just 10 bps higher at 6.5%.

That is hardly surprising considering the fact that even the government had hinted that due to support given to inflation control measures, the fiscal deficit may shoot up in FY23. Key insiders had pegged the full year fiscal deficit at closer to 6.9%. However, in a subsequent statement, the finance minister Nirmala Sitharaman declared quite categorically that the government would manage the show without any spillage in the fiscal deficit numbers. That appears to be largely borne out by the research report put out by SBI.

The trends are hinting at higher fiscal deficit. For instance, as per the note put out by the Controller General of Accounts (CGA), as of June 2022, the fiscal deficit had already touched 21.2% of the full year target. That is much higher at the corresponding quarter las year. Tax revenues have been robust on higher economic activity also due to improved compliance. SBI raised the current account deficit target for FY23 to 3.7% of GDP, which is hardly surprising considering that the economy saw trade deficit cross $100 billion in 4 months.