Ind-Ra sees fiscal slippage of 10 bps in FY24

Ind-Ra sees fiscal slippage of 10 bps in FY24

The higher-than-budgeted expenditure on subsidies and rural employment guarantee scheme coupled with a lower-than-budgeted nominal GDP growth is likely to push the fiscal deficit up by 10 basis points (bps) to 6.0% of GDP in FY24, India Ratings and Research (Ind-Ra) said in a note.

The Budget has pegged the nominal GDP growth at 10.8% of the GDP, but most economists expect it to range between 9-9.5%. In H1, the nominal GDP growth came in at 8.6%, and to reach the Budgeted growth of 10.8%, GDP in nominal terms will have to expand by 12.8% in the second half, which seems highly unlikely.

“Major reason for the increased expenditure is higher expenditure by a few select ministries/departments and recouping of Rs 28,140 crore to the Contingency Fund of India which was drawn by 30 departments/ministries as an advance in the past,” the note said.

Post the introduction of the first batch of supplementary demand for grants, the total expenditure commitment of the Centre increased to Rs 45.6 trillion from Rs 45.03 trillion pegged in the Budget.

Within total, revenue expenditure’s commitment rose to Rs 35.6 trillion from Rs 35.02 trillion, while capital expenditure stayed the same at Rs 10.1 trillion.

The additional outlay of Rs 58,378 crore would be spent on food, fertiliser and LPG subsidy, and the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA).

Even though Ind-Ra expects the government’s net tax revenue mop-up to exceed the budgeted amount Rs 1.2 trillion to Rs 24.5 trillion in the current fiscal, thereby providing some cushion to fiscal slippage; but, an expectation of the second batch of supplementary demand is likely to act offset its impact.

So far, in April-October, the Centre has met 45% of its full year fiscal deficit target of 17.87 trillion as against 45.6% in the first seven months of FY23. This was largely due to a 15% decline in capital and 14% revenue expenditures in October.

Many economists, however, hold on to the view that the Centre will attain the fiscal deficit target of 5.9% of GDP for FY24.

“The supplementary demand for grants indicates very moderate overshoot of subsidy expenditure and MGNREGA, which can be balanced by expenditure savings in other areas. One such area is the loans to state governments for capex where the target has been set at Rs 1.3 trillion but till date Rs 59,000 crore has been released,” said Gaura Sen Gupta, economist, IDFC FIRST Bank.