India's fiscal deficit rises to Rs 6.06 lakh crore in April-July, 34% of FY24 target

The Centre has set a target of reducing the fiscal deficit to at most 4.5 percent of GDP by 2025-26.

The Indian government's fiscal deficit widened to Rs 6.06 lakh crore in April-July from Rs 4.51 lakh crore in April-June, data released by the Controller General of Accounts on August 31 showed.

At Rs 6.06 lakh crore, the fiscal deficit for the first four months of the current financial year accounts for 33.9 percent of the full-year target of Rs 17.87 lakh crore.

The fiscal deficit for April-July 2022 was 20.5 percent of the target for 2022-23.

In July, the Centre's finances weakened after it posted a monthly fiscal deficit of Rs 1.54 lakh crore. In contrast, in the same month last year, the government recorded a fiscal surplus of Rs 11,040 crore. The reversal of fortunes meant the fiscal deficit for April-July 2023 was a massive 77.7 percent higher compared to the first four months of 2022-23.

However, despite the weakening of finances in July, the Centre remains broadly on track to meet its fiscal deficit target of 5.9 percent of the GDP for 2023-24, which is down from 6.4 percent of GDP in the previous fiscal.

Underlying numbers

The deterioration of the government's finances in July was driven by both, its income as well as expenditure. While total receipts in July were down 7.4 percent year-on-year at Rs 1.76 lakh crore, total expenditure jumped 84.6 percent from the same month last year to Rs 3.3 lakh crore. And capital expenditure was not responsible for this massive rise as it was only up 14.9 percent at Rs 38,599 crore.

For April-July, the Centre's total receipts are down 1.4 percent year-on-year at Rs 7.75 lakh crore, while total expenditure is up 22.5 percent at Rs 13.81 lakh crore. Capex, meanwhile, stood at Rs 3.17 lakh crore in April-July, up 52 percent year-on-year and accounting for 31.7 percent of the full-year target.

The Centre has focussed on boosting economic growth by pushing hard on capital expenditure.

While total receipts were down only 1.4 percent in April-July, net tax revenue for the Centre was 12.6 percent lower at Rs 5.83 lakh crore. Only the Reserve Bank of India's (RBI) unexpectedly large dividend has provided some semblance of respectability to the Centre's finances, with non-tax revenue in April-July at Rs 1.79 lakh crore, double of what it was in the first four months of 2022-23.

Dragging down tax collections is the mop-up from companies. While corporate tax collections in July were up 5.5 percent from the same month last year, they are 10.4 percent down for April-July from the year-ago period. Also putting pressure on the Centre's finances is the frontloading of tax devolution to states.

In July, the Centra transferred Rs 72,961 crore to states, taking the total for April-July to Rs 3.1 lakh crore.

"To meet the 2023-24 budget estimate, the Government of India has to release Rs 7.1 lakh crore to the states in the next eight months, which is 5 percent lower than the amount devolved in August-March in 2022-23 as per ICRA's calculations. This would contain the incremental fiscal deficit in some of the ensuing months, especially August," said Aditi Nayar, chief economist at ratings agency ICRA.

Also Read: Centre releases double tax devolution instalment of Rs 1.18 lakh crore to states

Transfers to states reduce the Centre's net tax collections. It releases tax devolution to states in 14 equal instalments every year. As such, this involves two months where the instalment is double the usual monthly amount. While in previous years these double-instalment months have come at the end of the financial year, New Delhi has brought them forward in the last couple of years on account of its own finances being on a strong footing.