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As capital expenditures surged and tax revenue remained flat between April and June of 2023, the Centre’s fiscal deficit grew to 25.3% of the full-year target. According to new government figures revealed on Monday, the budget deficit for the first quarter of FY24 was Rs 4.51 lakh crore, compared to the full-year projection of Rs 17.86 lakh crore.
Fiscal deficits occur when government spending exceeds income. It is determined by subtracting income from spending and expressed as a percentage of GDP.
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It was lower at Rs 3.5 lakh crore or 21.2% of the Budget forecast in a similar period in FY23.
Between April and June 2023, capital spending was worth Rs 2.78 lakh crore, or 27.8% of the full year. This was a lot more than the Rs 1.75 lakh crore that was spent during the same time period in the previous fiscal year. In order to help boost economic growth, the Centre has planned to spend Rs 10 lakh crore on capital expenditures (capex) this fiscal year. The Centre wants to make sure that the spending stays on track all year. In June, Rs 1.1 lakh crore was spent on capital expenditures, compared to Rs 89,332 crore in May of this year.
During April to June of 2023, the total amount spent was Rs 10.5 lakh crore, which was 23.3% of the Budget Estimate.
In the first three months of the fiscal year, revenue was strong at Rs 5.88 lakh crore, but net tax revenue was only Rs 4.33 lakh crore, which was a 14% drop from the same time last year. During the same time period in FY23, net tax income was higher, at Rs 5.05 lakh crore. ICRA said this was because taxes were given to the states faster, which made up for the sharp rise in non-tax revenue.
In the first quarter of fiscal year 2024, gross tax collections went up by only 3%. This was because corporate tax collections continued to go down, which was offset by an increase in private income tax and GST collections.
Central tax devolution rose to Rs 2.4 lakh crore in Q1FY24 from Rs 1.4 lakh crore in Q1FY23 due to the issuance of a double installment in June 2023. This contributed to the year-over-year decline in net tax revenues, according to Aditi Nayar, ICRA’s Chief Economist and Director of Research and Outreach.
Between April and June of 2023, corporate tax collections declined 13.7% year-over-year to Rs 1.38 lakh crore.
In July 2023, the Centre released Rs 72,900 crore as tax devolution, bringing the total amount to Rs 3.1 lakh crore, or roughly a third of the Budget Estimate (BE). According to Nayar, the Centre must distribute Rs. 7.1 lakh crore to the states within the next eight months in order to satisfy the BE. She warned, “This would cut down on the budget deficit in some of the months to come.”
The Centre intends to reduce its fiscal deficit from 6.4% of GDP in 2022-23 to 5.9% of GDP in 2023-24.
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