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Buoyancy in tax collections to help meet 6.4% fiscal deficit target in FY23

In the Union Budget 2022-23 presented on February 1, 2022, Finance Minister Nirmala Sitharaman had pegged the fiscal deficit at 6.4 per cent of GDP
Last Updated 31 January 2023, 18:51 IST

The additional expenditure needs of the government due to higher outflow on food, fertiliser and petroleum subsidies will be compensated by more-than-anticipated revenue collections and thus help the country stay on course to meet its budgeted 6.4 per cent fiscal deficit target for the current financial year, the Economic Survey 2022-23 released on Tuesday showed.

In the Union Budget 2022-23 presented on February 1, 2022, Finance Minister Nirmala Sitharaman had pegged the fiscal deficit at 6.4 per cent of GDP. According to the Economic Survey, the government is likely to meet this target largely due to the buoyancy in tax collections. This is despite the fact that the economic growth is estimated to be sharply lower than the budgetary estimates.

Food, fertiliser and petroleum subsidy outgo has overshot the budgetary estimate. In December, the Modi government sought Parliament’s approval for a fresh expenditure of Rs 2,14,580.88 crore towards major subsidies. This is over and above the Rs 317,865.91 crore budgeted for the current year.

Also Read | Economic Survey pegs India’s GDP growth for FY24 in the range of 6-6.8%

However, better than expected mop-up from taxes will help the government maintain its fiscal deficit maths.

During the April-November period of the current financial year, gross tax revenue registered a growth of 15.5 per cent year-on-year. Net tax revenue to the centre after the assignment to states grew by 7.9 per cent on a year-on-year basis in the first eight months of 2022-23.

The survey noted that conservative budget assumptions provided a buffer during global uncertainties. “While India entered the pandemic with a stretched fiscal position, the government's prudent and calibrated fiscal response enabled stable public finances even amidst the present uncertainties,” noted the survey tabled in Parliament by finance minister Sitharaman, a day ahead of the Union Budget 2023-24.

The fiscal deficit of the Central government has moderated after reaching a high of 9.2 per cent of GDP during the pandemic year 2020-21. It declined to 6.7 per cent in 2021-22 and is projected to fall further to 6.4 per cent of GDP in the current fiscal. “This gradual decline in the Union government's fiscal deficit as a percentage of GDP, in line with the fiscal glide path envisioned by the government, is a result of careful fiscal management supported by buoyant revenue collection over the last two years,” the survey noted.

The Economic Survey highlighted that Direct taxes grew at 26 per cent year-on-year basis due to corporate and personal income tax growth in FY22. Growth rates witnessed in the major direct taxes during the first eight months of FY23 were much higher than their corresponding longer-term averages. Customs collections jumped by 12.4 per cent in the first eight months of the fiscal on a year-on-year basis. However, excise duty collection dipped by 20.9 per cent during the period under review.

Structural reforms like the introduction of GST and the digitalisation of economic transactions also led to the greater formalisation of the economy and hence expanded the tax net and enhanced tax compliance. Thus, revenues have grown at a pace much higher than the growth in GDP.

The number of GST taxpayers doubled to 1.4 crores in 2022 from nearly 70 lakhs in 2017. The gross GST collections during April-December 2022 period jumped to Rs 13.40 lakh crore, registering a year-on-year growth of 24.8 per cent. The average monthly GST collection in the first nine months of the fiscal stood at Rs 1.5 lakh crore.

According to the survey, GST collections have surged due to the nationwide drive against GST evaders and fake bills and systemic changes introduced such as rate rationalisation correcting inverted duty structure.

The post-GST period experienced many headwinds, most notably the Covid pandemic. The nominal GDP grew at a slower CAGR of 9.6 per cent in the post-GST years (FY19 to FY23). However, GST collections have grown at a CAGR of 10.9 per cent during this period. This has occurred even though the effective GST rate has fallen from inception from 14.4 per cent in 2017 to 11.6 per cent in 2019, according to RBI data.

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(Published 31 January 2023, 18:51 IST)

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