India’s Fiscal Deficit Hits 18 Year Low

India’s fiscal deficit as a percentage of budget estimates stood at 18 years low to 31.1% for April-August 2021, according to the data released by the Controller General of Accounts (CAG). 

The fiscal deficit in monetary terms for April-August 2021 stood at Rs.4.68 lakh crores, almost half of last year’s deficit of Rs.8.7 lakh crore. Also, this is about 15% lower than the deficit of the pre-COVID year 2019-20. The decline in the current year’s deficit is due to a sharp increase in government revenue and only a marginal increase in spending.

The deficit figure of the current fiscal will be lower than the previous year. In the financial year 2020-21, the country’s fiscal deficit had soared to 109.3% of the estimates. The increase in the deficit in 2020 was mainly due to the massive government expenditure to deal with the COVID-19 pandemic.

A fiscal deficit arises when the government’s spending is more than the revenue—lower this deficit, better for the economy. 

This mid-year decline in the fiscal deficit has brightened the possibility of the entire year’s fiscal deficit to be lower than the budget estimates up to 0.5% of the Gross Domestic Product (GDP). Hence, the economists have estimated the deficit to be in the range of 6.3%-6.6% of GDP, approximately Rs.15.07 lakh crore. 

Revenue receipts from April-August 2021 stood at Rs.7.93 lakh crore, which is 114% higher than the last year. This increase will give additional spending power to the government to fuel the economy, which faced disruption due to the pandemic. On the contrary, the total expenditure was up at Rs.12.7 lakh crore, 2% from the previous year. 

The government’s capital expenditure, which means spending on creating assets like infrastructure, stood at Rs.1.71 lakh crore, 28% higher than the previous year. The budget estimate of capital outflow is Rs.5.54 lakh crore for the entire current year, higher by 34.5% of the prior year. Capital expenditure acts as a multiplier and generates additional revenue for the government.

Revenue expenditures for this period, including fixed obligations and regular operating expenses such as pensions and salaries, were down by 1% at Rs.11 lakh crore compared to last year. Revenue expenditure helps to create demand in the economy. Also, the government’s recent lifting of the expenditure cap may ensure the picking of revenue expenditure in the second half of the year. 

There is a healthy expansion in the gross tax revenue of the government in the first half of the financial year 2021-22 compared to the previous year. The tax revenues are expected to increase by Rs.2 lakh crore in 2021-22. The net tax revenue from April-August 21 was 127% higher as compared to the previous year. Also, it was 60% higher than the net tax revenue of 2019-20. This was due to an increase in pick up of Goods and Services Tax (GST), company tax, customs and excise duty.  

Income tax collection stood at Rs.1.99 lakh crore, which was 69% higher than 2020-21 and 15% higher than 2019-20.

Corporation tax stood at Rs.1.67 lakh crore, 160% higher than 2020-21 and 51% higher than 2019-20. 

Customs collection, mainly driven by gold imports, is 136% higher than 2020-21.

Excise duty collection stood at Rs.1.37 lakh crore, 37% higher than 2020-21. 

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For any clarifications/feedback on the topic, please contact the writer at jyoti.arora@cleartax.in