Rating agency Acuité Ratings & Research said that the latest government measures will cause a fiscal slippage of 0.3-0.4 percent of GDP despite buffers from the recently concluded LIC IPO and the prospects of of higher tax revenue collections.
"Going forward in the current year, despite buffers from the recently concluded LIC IPO (garnering ₹20,500 crore on revised valuation) along with the likelihood of higher than budgeted tax revenue collections, we now see the possibility of fiscal slippage risks, aggregating to 0.3-0.4 percent of GDP from the budgeted 6.4 percent of GDP for FY23," said Acuité Ratings & Research in a note.
Fiscal Outlook
For FY23, Acuité now sees congregation of fiscal slippage risks despite buffers from the recently concluded LIC IPO (garnering ₹20500 crore on revised valuation) along with the likelihood of higher than budgeted tax revenue collections.
The slippage risks are gaining momentum on back of the latest fiscal measures announced by the government as follows:
1. Excise duty on petrol and diesel has been reduced by ₹8 per litre and ₹6 per litre respectively further to the cuts effected in Nov-21, bringing down the taxes to their respective pre-Covid levels. From the fiscal perspective, a cut in excise duty on petroleum products is expected to have a revenue implication of around ₹85,000 crore over the remainder of FY23 which will be entirely borne by the Central Government.
2. Fertilizer subsidy has been increased by ₹1.1 lakh crore doubling it to ₹2.15 lakh crore from the budgeted level for FY23, to insulate farmers from the spike in the global prices of DAP (Di-ammonium Phosphate) and MoP (Muriate of Potash) in the last one year.
3. LPG subsidy of ₹200 per gas cylinder (up to 12 cylinders) to be provided to over 90 mn beneficiaries under PM Ujjwala Yojna. This is expected to have a revenue implication of around ₹6100 crore a year on the exchequer.
4. Customs duty on the import of certain industrial raw materials like coking coal, ferronickel and coke and food commodities like edible oil has been cut from 2.5 percent/5 percent to nil.
Overall, the fiscal slippage of these measures announced by the government is estimated at around ₹2 lakh crore. Apart from the aforementioned set of measures, the government had earlier decided to extend PM Garib Kalyan Anna Yojana by 6-months till Sep-22 which involves an additional outlay of ₹80000 crore, said the rating agency.
Moreover, a likely deferment of the big-ticket BPCL divestment due to subdued interest by the bidders amidst volatile market conditions along with lower than budgeted dividend/surplus RBI dividend of ₹30300 crore (vs. FY23 budget
estimate of ₹65000-70000 crore) will put pressure on the government’s budgeted fiscal arithmetic, the rating agency added.
“We see a significant possibility of fiscal slippage in FY23, aggregating to 0.3-0.4 percent of GDP from the
budgeted 6.4 percent of GDP for FY23 as the Government has initiated fiscal measures like duty cuts to moderate the impact of high commodity prices. Importantly, these steps may not be one-off in nature and follow-up measures may be taken through additional subsidies or further rounds of tax cuts, if warranted to moderate the increased inflationary pressures. The timeframe for fiscal consolidation is clearly uncertain given the current economic realities,” said Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research.
Receipts: Robust tax and non-tax revenue collection buoys overall receipts
Acuité pointed out that barring the large one-off tax revenue sharing with states in Feb-22, total receipts have been buoyed by healthy tax as well as non-tax revenue accretion in FY22. For FY22, gross tax revenue collection clocked a growth of 33.7 percent year-on-year (YoY) compared to just 0.7 percent seen in the corresponding period in FY21.
It’s not just the annualized growth that looks better (which is strongly aided by a favourable statistical base), the FY22 gross tax revenue achieved 107.6 percent of the full year RE (revised estimates). While strong momentum in tax collection is broad-based, it is being powered by robust growth in collections of corporate tax, customs, and income tax, said the rating agency.
Acuité highlighted that the non-tax revenue too stood at 110.9 percent of the RE. The key reason for robust performance under this category stems from a significantly higher than budgeted dividend from the RBI.
Collection under non-tax revenue has also been boosted in March 2022 with key telecom companies prepaying their spectrum fee, taking advantage of the current low-interest rate regime.
Meanwhile, non-debt capital receipts stood at just 39.2 percent of the RE primarily on the back of lower disinvestment receipts. The government closed FY22 with a disinvestment revenue of only ₹13500 crore, said Acuité. This is significantly lower vis-à-vis the downwardly revised estimate of ₹78000 crore due to the deferral of LIC IPO from Mar-22 to the early part of FY23.
Disclaimer: The views and recommendations made above are those of the rating agency and not of MintGenie.
