Centre to tap market, NSSF to boost receipts: Capital expenditure won’t get compromised; revenue spend to be ‘calibrated’

Before the latest set of measures, the extra subsidy outgo in FY23 due to elevated global prices of commodities and the extension of the free ration scheme till September was expected to be offset by higher-than-expected revenues, especially tax receipts, in the year.

The slew of indirect tax cuts announced on Saturday to contain inflation would require the Centre to calibrate revenue expenditure besides moderately increasing its borrowings, a top government official told FE.

Before the latest set of measures, the extra subsidy outgo in FY23 due to elevated global prices of commodities and the extension of the free ration scheme till September was expected to be offset by higher-than-expected revenues, especially tax receipts, in the year.

“There is now going to be a shortfall in the revenue compared to the enhanced expenditure. We, however, would not like to cut down on the capex programme as it required for long term growth,” the official said. “The revenue shortfall will be met by a combination of calibration of expenditure, mainly targeted at revenue expenditure, and some increase in borrowings – either from the market or from the National Small Saving Fund (NSSF),” the official added.

The finance ministry officials will go back to the drawing board soon to reassess the budget in view of the new measures. Of course, the quantum of additional borrowing and expenditure cuts will depend on how revenue streams are in the coming months.

There is also an expectation that the disinvestment target of Rs 65,000 crore will be exceeded by around Rs 20,000 crore, given the receipts from LIC IPO, which was not budgeted.

Finance minister Nirmala Sitharaman announced an additional outlay of Rs 1.10 trillion for fertiliser subsidy this fiscal – the budgeted amount was Rs 1.05 trillion. This was in line with the expectations by most analysts. In fact, finance secretary TV Somanathan had told FE that the extra subsidy outgo of nearly $2 trillion (including Rs 80,000 crore on free ration scheme) would be more or less balanced by higher revenues.

The latest set of measures will result in revenue loss of a little less than Rs 1 trillion in FY23. If the excise duty cuts on auto fuels would require the Centre to forgo revenue of Rs 1 trillion annually, the revenue loss during the little over 10 months left in the current fiscal will be Rs 85,000-90,000 crore, the official said. If the outgo of Rs 6,100 crore a year on account of the Rs 200/cylinder subsidy for Ujjwala scheme beneficiaries and the revenue loss from import duty cuts on a host of industrial raw materials such as coking coal, naphtha, and steel are added, the revenue hit in FY23 will be little under Rs 1 trillion.

Significantly, about Rs 30,000-crore savings are expected in FY23 from the budgeted level, thanks to lower procurement of wheat caused by high mandi rates and fall in production of the cereal.

The Central government has announced its plan to borrow Rs 8.45 trillion from the market through dated securities in the first half of FY23, or just about 59% of the revised full-year target, as it sought to front-load spending to spur growth.

The finance ministry has pegged FY23 gross market borrowing via dated securities at Rs 14.31 trillion, against the budgeted Rs 14.95 trillion, citing a switch programme conducted on January 28. Its gross market borrowing witnessed a spike in FY20 to Rs 12.6 trillion in the wake of the Covid outbreak, up almost 62% from the budgeted level.

Meanwhile, the Centre’s offtake from the NSSF is budgeted to drop from a record Rs 5.92 trillion in FY22 to Rs 4.25 trillion in FY23. In FY20, it had borrowed Rs 4.87 trillion from the NSSF. Given the latest developments, borrowings from NSSF this year could be slightly higher than the budgeted level.

Rating agency Icra estimates the net tax revenues of the Centre to surpass the budget estimates by at least Rs 1.3 trillion even after the excise reduction on fuels. “We now expect nominal GDP to expand by around 14-15% in FY23, following the hardening of commodity prices and implications for the GDP deflator. This will help to contain the size of the fiscal deficit relative to the nominal GDP for this year,” the agency’s chief economist, Aditi Nayar, said.

The Budget estimate for fiscal deficit is pegged down at 6.4% of GDP in FY23 from about 6.9% in FY22.