As the government plans to provide more funds on three fronts — food, fertiliser subsidy, and the rural job guarantee scheme — the pace of expenditure will pick up in the second half of the current financial year, putting the Centre on track to meet the fiscal deficit target for FY24, a senior government official said.
Despite the additional spending on account of subsidies, the Centre is confident of meeting the fiscal deficit target of 5.9 percent of gross domestic product (GDP) for 2023-24, the official told Moneycontrol.
“No deviation is expected on the fiscal deficit as the impact of higher subsidies is only for three months. The pace of spending is typically slower in the first half of the fiscal. This is in line with the usual trend, and there will be no undershooting in terms of the spending targets we have set,” the official said.
While the government has budgeted for a food subsidy of Rs 1.97 lakh crore for the current fiscal, the fertiliser subsidy target in the Budget was pegged at 1.75 lakh crore. The allocation for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) is Rs 60,000 crore for 2023-24, a steep cut from last year's outlay of Rs 89,400 crore.
The central government’s expenditure in the first half of the current financial year has been less than half of that projected (47.1 percent) even though it collected more than half (52.2 percent) of its budgeted revenue in April-September. The fiscal deficit widened to Rs 7.02 lakh crore in April-September, accounting for 39.3 percent of the full-year target of Rs 17.87 lakh crore.
“We have maintained our push on capital expenditure. Other than that, spending has fluctuated in the first half of the current financial year,” the official added.
The government’s focus on capex continued as investments were up 29 percent in September and 43.1 percent in April-September at Rs 4.91 lakh crore. Since then, the Centre's capital expenditure has crossed the Rs 5 lakh crore mark, Moneycontrol reported on October 23, quoting a government source.
Additional costs
The Centre’s decision to extend the free food grain plan will have a limited impact on the fiscal deficit for FY24, the official said, adding that the additional spending due to the three-month extension is to the tune of Rs 15,000 crore.
Prime Minister Narendra Modi said on November 4 that India is planning to extend its free food grains programme by five years. This announcement comes ahead of general elections scheduled to be held around April or May 2024.
The free food grain scheme known as the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) allows eligible citizens to purchase five kg of food grains per person per month at highly subsidised prices.
The cost of providing LPG cylinders at Rs 300 to beneficiaries of the Pradhan Mantri Ujjwala Yojana will have an additional impact of Rs 3,840 crore, while the decision to sell wheat flour at a subsidised rate of Rs 27.50 per kg under the Bharat Atta scheme will have no impact on government spending, the official added.
The urban housing subsidy scheme that is expected to launch shortly will lead to an additional expenditure of Rs 3,000 crore in FY24 covering a period of three months, the official said, adding that the total cost of the scheme is Rs 60,000 crore spread over five years.
The official added that gains from tax collections will help cover the additional expenditure being incurred in FY24. In September, the Indian government's net tax revenue rose 14.3 percent year-on-year (YoY) to Rs 3.56 lakh crore. This was due to a 26.6 percent increase in corporate tax collections to Rs 2.12 lakh crore, while personal income tax collections rose 15.6 percent to Rs 91,247 crore. This propelled total receipts by 9.3 percent in September.
Predictable borrowing
According to the official, the Centre’s cash position is strong on account of a steady flow of funds through borrowings from the bond market at a time when expenditure has been fluctuating.
Even though the central government’s cash position is more than comfortable, it wants to keep the borrowing programme for the current fiscal predictable, this official said when asked if the amount being raised through the sale of dated securities could be lowered later in the fiscal year.
“We do not want to keep surprising the bond market,” the official added.
A person familiar with the matter said that the Centre’s cash balance around last week was over Rs 4 lakh crore and that meeting the fiscal deficit target for the current fiscal is high on the government’s agenda.
The finance ministry, on September 26, announced that it will borrow Rs 6.55 lakh crore through the sale of dated securities in the second half of the current fiscal, in line with its budget target. This would include green bonds worth Rs 20,000 crore.
The decision to keep the borrowing in line with the budget target did not tally with widespread expectations of a cut, given that there has been a surge in small savings collections. The Centre funds its fiscal deficit through a mix of borrowings from the bond market, proceeds from small savings, and drawdowns from the cash balance.
The central government plans to borrow a record Rs 15.43 lakh crore on a gross basis through the sale of bonds in 2023-24. Of this, Rs 8.88 lakh crore has been borrowed in the first half of the financial year.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
