Net Tax Revenues Likely To Exceed By Rs0.3 Tn

Core Sector Expansion Halved To A 14 Month Low

Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA

FinTech BizNews Service   

Mumbai, February 1, 2024: The Government of India's fiscal deficit stood at Rs9.8 trillion (Tn) or 55% of the FY2024 BE in April-December FY2024, marginally lower than the Rs9.9 trillion recorded in April-December FY2023. While net tax revenues rose by 11%, non-tax revenues expanded by 46% on the back of the RBI dividend, amidst a marginal 2% growth in revenue expenditure, and a robust 38% YoY expansion in capex. ICRA does not expect the fiscal deficit target of Rs17.9 trillion for FY2024 to be breached. However, a lower nominal GDP than what the Union Budget had pencilled in, could result in the fiscal deficit printing at 6.0% of GDP, says Aditi Nayar, Chief Economist, Head - Research & Outreach, ICRA.

In the month of December 2023, capex more than doubled on a YoY basis to Rs880 billion, offsetting the tepid outtrun in the previous two months. Accordingly, the GoI's capex expanded by 24% in Q3 FY2024, which nevertheless marks a moderation from the 43% YoY increase recorded in H1 FY2024. As much as Rs3.3 trillion trillion needs to be incurred in Q4 FY2024 to meet the full year target for capex this fiscal, which appears optimistic relative to the Rs2.5 trillion recorded in Q4 FY2023. ICRA expects the GoI’s capex to undershoot the FY2024 BE by Rs0.75 trillion, which still implies a robust YoY growth of 26%.

Notably, the headroom left for revenue spending in the last three months of FY2024 is slightly lower than the expenditure recorded in Q4 FY2023. Revenue expenditure appears likely to mildly overshoot the FY2024 BE, on account of major subsidies and MGNREGS. ICRA expects a lower-than-budgeted capital expenditure to partially offset the overshooting in revenue expenditure in FY2024 compared to the budgeted target. Consequently, ICRA currently projects the GoI’s total expenditure to exceed the FY2024 BE by a marginal Rs50 billion.

We project the GoI’s gross tax revenues to exceed the FY2024 BE by Rs0.6 trillion, led by direct taxes and CGST inflows, amidst an undershooting in other indirect taxes such as excise duty. Setting aside the additional devolution to the states, we estimate that net tax revenues will exceed the FY2024 BE by a modest Rs 0.3 trillion. This is equivalent to only 50% of the estimated upside in GTR as the excise undershooting would be restricted to the GoI and not shared with the states. Overall, revenue receipts are projected to exceed the FY2024 BE by Rs0.5 trillion, implying a growth of 13% over the FY2023 Prov.

The central tax devolution (CTD) to the states rose to Rs7.5 trillion during Apr-Dec 2023, 22.6% higher than Rs6.1 trillion transferred during Apr-Dec 2022. To meet the FY2024 BE (Rs10.2 trillion), the GoI must release Rs2.7 trillion to the states during Q4 FY2024, which is a sharp ~19% lower than the amount devolved in Q4 FY2023 as per ICRA's calculations (Rs3.4 trillion). Based on our assessment of the gross tax revenues, the CTD would need to exceed the FY2024 BE by approximately Rs0.3 trillion."

Core Sector Expansion Halved To A 14 Month Low 

"The core sector expansion halved to a 14 month low of 3.8% in December 2023 from 7.9% in November 2023, with a moderation in growth across six of the eight constituents except fertilizers and cement.  While crude oil output contracted, three other sub-sectors (refinery products, cement and electricity) recorded a sub-3% rise in December 2023. In contrast, coal output expanded by a healthy double-digit 10.6% in December 2023, although this was the lowest pace of growth recorded since June 2023, adds Aditi Nayar.

Following the tepid core sector growth in December 2023, we project the IIP expansion for that month at a bleak 1-3%."

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