With the government sticking to the fiscal consolidation path, the move towards a sub-6 per cent fiscal deficit target in the next financial year of 2023-24 from 6.4 per cent of the GDP comes on the back of an effective compression in expenditure, including cuts in MGNREGA scheme, utilising savings on the back of a reduction in subsidies and expectations of high revenue growth.
The government has been able to stick to a fiscal deficit target of 6.4 per cent of the GDP in its revised estimates for 2022-23, despite overshooting food, fertiliser and fuel subsidies, primarily due to a higher nominal GDP. The nominal GDP has now been estimated to grow 17.6 per cent in 2022-23 as against the assumption of 11.1 per cent, helping the government to stick to its originally fixed fiscal deficit target. Though the government has not detailed its fiscal deficit targets beyond 2023-24 in the medium-term fiscal policy cum fiscal policy strategy statement, it said it intends to stick to its fiscal glide path to reach the fiscal deficit target of below 4.5 per cent by the financial year 2025-26.
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“Given continued global uncertainty, this statement does not outline medium-term fiscal projections. Instead, and as announced in the Budget Speech for FY 2021-22, the government would continue on the broad path of fiscal consolidation to reach a fiscal deficit to a GDP level below 4.5 per cent by FY 2025-26. In line with this commitment, the Central Government attained the lower Fiscal Deficit to GDP projected for FY 2021-22 and FY 2022-23,” the Budget document said.
With this as the base, the goal for a fiscal deficit target of 5.9 per cent of the GDP for the next financial year has been set due to a sharply lower estimate for subsidies for FY24 despite a more modest and potentially accurate nominal GDP for FY24.
Overall government expenditure is seen rising 7.4 per cent to Rs 45 lakh crore in 2023-24, while revenues are seen growing 12.1 per cent to Rs 26.32 lakh crore, including an 11.7 per cent growth in tax revenues to Rs 23.30 lakh crore.
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Finance Secretary TV Somanathan said the quality of public expenditure is increasing. “Borrowings have been used very constructively towards growth-inducing investments and have not been frittered away on the unproductive expenditure,” he said.
He further said that the revenue estimates in the FY24 Budget assume a “buoyancy of 1” as the gross tax revenue growth assumption for FY24 is the same as nominal GDP growth at 10.5 per cent. “We feel we have the means and ability to lower the fiscal deficit below 4.5 per cent by 2025-26,” he said. Total expenditure on major subsidies of food, fuel and fertilisers is estimated to rise by Rs 2.03 lakh crore to Rs 5.21 lakh crore in the revised estimates for 2022-23 as against the budget estimate of Rs 3.17 lakh crore. Spending on major subsidies is estimated to decline by 28.2 per cent to Rs 3.74 lakh crore in 2023-24.
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Following fiscal prudence
The government is aiming to follow a path of fiscal prudence by sticking to its fiscal glide path. High nominal growth along with buoyancy in revenues and compression in non-essential expenditure apart from savings on subsidies is expected to support the government’s move towards a sub-6 per cent fiscal deficit target for 2023-24. The government intends to stick to its fiscal glide path to reach the fiscal deficit target of below 4.5 per cent by FY2025-26.
The financing of the fiscal deficit would entail a record gross borrowing of Rs 15.43 lakh crore in FY24 to meet its expenditure needs spread across the objectives of driving growth and ensuring social security. Total borrowing of Rs 14.21 lakh crore has been estimated for the current financial year ending March 31, 2023.
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Finance Minister Nirmala Sitharaman, while presenting the Budget on Wednesday, said the net market borrowings from dated securities are estimated at Rs 11.8 lakh crore to finance the fiscal deficit in 2023-24. “The balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at Rs 15.4 lakh crore,” she said. The government has raised Rs 12.93 lakh crore till January 27, which is 91 per cent of the overall borrowing target of Rs 14.21 lakh crore estimated for 2022-23.
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