India’s Fiscal Health: A Closer Look at April-February Numbers
India’s fiscal deficit has reached Rs 15.01 lakh crore, or 86.5% of the year’s revised target, according to the latest data from the Controller General of Accounts (CGA). This figure represents the state of the country’s finances from April to February. A notable shift occurred in February when net tax revenue dipped into the negative, largely due to a decrease in corporate tax revenue and the effect of tax devolution instalments transferred to states.
Net tax revenue for February was recorded at a negative Rs 30,388 crore, a stark contrast to the Rs 43,483 crore reported in the same month the previous year. However, looking at the broader picture from April to February of the fiscal year 2023-24, net tax revenue still stands at Rs 18.49 lakh crore, an increase from Rs 17.32 lakh crore during the same period in the preceding year.
Corporate tax receipts experienced a downturn in February, with figures showing a negative Rs 2,851 crore compared to Rs 33,898 crore in January and Rs 12,831 crore in February of the last year. This shift is attributed to an anticipated rise in refunds.
Paras Jasrai, Senior Analyst at India Ratings and Research, highlighted the growth in gross tax revenue for the union government at 13.4% year-on-year during the first 11 months of FY24. Income tax and corporate taxes saw increases of 25.8% and 17.3% respectively year-on-year. However, he pointed out that net tax collections grew by only 6.8% year-on-year during this period, marking a four-year low due to higher transfers to states, which were up by 27.9% year-on-year.
The union government made two additional transfers to states in February 2024, releasing two instalments of tax devolution amounting to Rs 1.42 lakh crore. This brings the total funds released to states to Rs10.32 lakh crore, with only Rs 68,000 crore pending for release in March.
On the expenditure side, there has been significant compression in revenue expenditure, but economists note that the quality of the deficit is much improved this fiscal year. The ratio of revenue to fiscal deficit stands at a record-low 48.7 percent for the first 11 months of FY24, indicating that most borrowing has been channeled into capital expenditure (capex).
Capex for the centre during this period reached 84.8 percent of the Rs 9.5 lakh crore target, showing an increase from 81.1 percent year-on-year. In February alone, capex rose to Rs 84,426 crore from January’s Rs 47,557 crore.
Revenue expenditure up to February accounted for 83.1 percent of the revised estimate for FY24, slightly lower than last year’s 83.9 percent for the same period. The centre’s total expenditure for April-February in FY24 hit 83.4 percent of the revised estimate.
Some sectors have experienced a shortfall in spending which could lead to savings for the government if not utilized by March end. Madan Sabnavis, Chief Economist at Bank of Baroda, identified areas such as agriculture, rural development, chemicals and fertilisers, roads, and consumer affairs as having major shortfalls.
Sabnavis suggests that any savings, coupled with a GDP growth rate higher than projected, could help lower the fiscal deficit ratio by an additional 0.1-0.2 percent of GDP.