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India’s fiscal deficit may breach 5.9% of GDP target

  • Published
    27th Dec, 2023
Context

India's fiscal deficit for the current year may surpass the 5.9% GDP target and reach 6%, despite robust tax collections, as per India Ratings and Research.

Fiscal Concerns-

Potential Breach of Fiscal Target:

  • India Ratings and Research projects a possible breach of the 5.9% GDP fiscal deficit target for the current year, with estimates suggesting it could reach 6%.
  • This deviation is attributed to the anticipated overshooting of revenue spending by approximately ?2 lakh crore, outweighing buoyant tax collections.

Parliamentary Approval and Spending Commitment:

  • The Centre recently secured parliamentary approval for the first supplementary demand for grants in 2023-24, leading to an additional cash outgo of ?53,378 crore.
  • The total spending commitment, including revenue and capital expenditure, now stands at ?45.6 lakh crore.
  • Notably, revenue expenditure accounts for ?35.6 lakh crore, and capital expenditure is ?10.1 lakh crore.

Likelihood of Second Supplementary Demand:

  • India Ratings foresees the necessity for a second supplementary demand for grants, projecting a surge in revenue expenditure to ?37.1 lakh crore, surpassing the budgeted amount by over ?2 lakh crore.
  • This, coupled with a lower-than-expected nominal GDP, is anticipated to drive the fiscal deficit to 6% of GDP.

Expenditure Drivers:

  • Higher spending by select ministries and the replenishing of ?28,000 crore to the Contingency Fund of India, previously drawn as an advance by 30 departments, contribute significantly to the increased expenditure.

Priority Areas in Supplementary Demands:

  • The first supplementary demand focused on critical sectors such as food, fertilizer, LPG subsidy, and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS).
  • The latter, in particular, witnessed spending surpassing the Budget Estimate, prompting an additional allocation of ?14,524 crore.

Economic Implications -

  • The fiscal landscape is grappling with the dual impact of higher-than-anticipated expenditure and potential revenue shortfalls, posing challenges to maintaining the targeted fiscal deficit.
  • Key drivers of increased spending include select ministry allocations and the reimbursement of the Contingency Fund, reflecting evolving economic priorities.
  • The supplementary demands for critical sectors underscore the government's response to urgent needs, but the fiscal implications demand close scrutiny, especially in the context of an evolving economic landscape.
  • A nuanced understanding of the fiscal dynamics is crucial for policymakers to balance the imperatives of economic growth, prudent financial management, and fiscal discipline in the coming months.
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