India’s Fiscal Deficit Outlook
In the fiscal framework, a recent pronouncement by India Ratings and Research has forecasted fiscal deficit of 5.9% of GDP for the current fiscal year. Anticipations suggest a potential breach, with projections indicating a spike to 6%.
- Despite buoyant tax collections, risk seems large, emanating from a substantial increase in the revenue spending against the Budget Estimate, approximating ₹2 lakh crore.
Supplementary Demand for Grants:
- Supplementary Demand for Grants: It is when the amount authorised by the Parliament through the appropriation act for a particular service for the current financial year is found to be insufficient for that year that parliament decides to pass it. This grant is presented and passed by the Parliament before the end of the financial year.
- Total Spending Commitment: The approved supplementary demand elevates the total spending commitment for 2023-24 to ₹45.6 lakh crore.
- Breakdown of Expenditure: This comprises approximately ₹35.6 lakh crore earmarked for revenue expenditure and ₹10.1 lakh crore designated for capital expenditure
Anticipation of Second Supplementary Demand:
- Historical Trend: India Ratings anticipates a recurring pattern seen in the past, wherein a second supplementary demand for grants is expected.
- Projected Expenditure: The likelihood of a second supplementary demand raises expectations of increased revenue expenditure to ₹37.1 lakh crore, surpassing the budgeted figure by over ₹2 lakh crore.
Focus Areas of Supplementary Demands:
- Priority Sectors: The first supplementary demand allocates additional funds to crucial sectors such as food, fertilizer, and LPG subsidy.
- Special Allocation: Funds are sought to bolster the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), emphasizing its significance in the supplementary demands.
MGNREGS Expenditure Overruns:
- Budgeted vs Actual Spending: Under the MGNREGS, actual spending by December 19 overshadows the Budget Estimate, with an expenditure of almost ₹80,000 crore compared to the budgeted ₹60,000 crore.
- Supplementary Allocation: Recognizing the expenditure surge, the government includes a top-up of ₹14,524 crore for MGNREGS in the supplementary demands.
Fiscal Deficit Concerns:
- Impact on Fiscal Deficit: India Ratings and Research economists predict that the higher-than-budgeted revenue expenditure, coupled with a probable second supplementary demand and lower-than-budgeted nominal GDP, might propel the fiscal deficit to 6% of the GDP.
- Expenditure Drivers: A substantial portion of the increased expenditure is attributed to higher spending by select Ministries and the replenishment of over ₹28,000 crore to the Contingency Fund of India, previously drawn as an advance by 30 departments.
What is Fiscal Deficit?
- In public finance, a fiscal deficit is the difference between a government’s total expenditure and its total receipts, excluding borrowing.
- It is an indicator of the extent to which the government must borrow to finance its operations.
- The formula for fiscal deficit is: Fiscal Deficit = (Revenue Expenditure + Capital Expenditure) – (Revenue Receipts + Capital Receipts)
- A fiscal deficit occurs when expenditure exceeds the revenue generated.
- The fiscal deficit is expressed as a percentage of the country’s GDP. For example, in the financial year 2023-24, states have budgeted a GFD to GDP ratio of 3.1 per cent. This is below the prescribed limit of 3.5 per cent set by the Centre.
- The NK Singh Committee (set up in 2016) recommended that the government should target a fiscal deficit of 3% of the GDP in years up to 31st March 2020.