NEW DELHI: With the Union Budget around the corner, there has been a lot of curiosity over the Central government finances in 2023-24.In the current financial year, the government has managed to sail through many challenges and is looking to excel on several fiscal parameters. But how the government manages its finances in the next financial year, given a slowing economy and global recession, is keeping everyone guessing.
This newspaper looked through several macroeconomic reports, and talked to experts to gauge the general sense on how they feel the government would present a layout of its revenue and expenditure in the Budget this year.
Revenue collection
In the current financial year, central government’s gross tax revenue collections are going to exceed the Budget targets by nearly Rs 2-3 lakh crore, and experts believe tax collection would show a modest growth in the next financial year as well. ICRA estimates the government’s gross tax revenues in FY2024 around Rs. 34 lakh crore, registering a year-on-year growth of 9.4% (over FY2023 projection). Goldman Sachs is more optimistic on gross tax revenue collection with a 10.5% growth estimate. In FY 23, the gross tax collection is likely to be around Rs 30 lakh crore.
ICRA’s lower than double-digit growth in tax revenue is largely due to a likely reversion of excise duty on auto fuels to pre-Covid levels, as well as moderate projections on the customs duty front. Goldman Sachs expects excise duty mop up to fall to 1.0% of GDP (from estimated 1.1% of GDP in FY23). The revenue receipts could be constrained by lower proceeds from disinvestment as well as non-tax revenues like dividend from RBI and CPSEs.
Expenditure
Big challenge for finance minister Nirmala Sitharaman would be to keep expenditure budget in control and strike a fair balance between capex and administrative expenses.One of the biggest positives for the government on expenditure side would be recent discontinuation of free food programme, which was unveiled to provide food relief during the pandemic. Most analysts believe the move would see food subsidy bill not exceeding Rs 2 lakh crore in FY24. In the fiscal, food bill was likely to touch Rs 3 lakh crore, if not for discontinuance of free food programme. “Fiscal impact of this reorientation of subsidy programme will be net positive, resulting in a smaller outlay in FY24, resulting in savings of 0.6- 0.7% of GDP,” says Radhika Rao of DBS Bank.
Analysts expect fertiliser subsidy to come down in FY24. “Global commodity prices, which rose in 2022 on the back of Russia-Ukraine conflict, have normalised and the outgo on fertiliser subsidy may fall in FY24. We expect fertiliser subsidy in FY24 to return to pre-Covid average of 0.5% of GDP,” says Goldman Sachs as it sees subsidy bill coming down from 2.1% of GDP in FY23 to 1.5% of GDP in FY24. Interest payments would continue to account for 22-25% of total expenditure. Experts say the quality of spending in the budget would improve with more allocation towards capex than revenue expenditures, which are expenses towards payment of interest, salaries, pensions and subsidies.
ICRA says the government may target a double-digit growth in capex to Rs 8.5-9 lakh crore in FY24, as against Rs 7.5 lakh crore in FY2023. In contrast, ICRA believes revenue spending to rise by a relatively muted 3% due to a lower outgo on account of food and fertiliser subsidy.
Fiscal Consolidation
A Goldman Sachs report estimates the central government will consolidate fiscal deficit by 50 basis points to 5.9% of GDP in 2023-24, as against 2022-23 budget estimates of 6.4%. The basis of Goldman Sachs estimate is lower expenditure on subsidies, a robust 12% growth in tax revenue and an 11% nominal GDP growth rate. “In FY24, based on our nominal GDP growth forecast of 11% YoY, we expect income and corporate tax revenue to grow 12% each… we would expect non-debt capital receipts to be at same level as in FY23 at 0.2% of GDP... Considering the above and factoring in the 60bp consolidation from reduction in subsidy spending as explained earlier, we estimate the government will consolidate fiscal deficit by 50bp to 5.9% in FY24.”Radhika Rao, senior economist at DBS Banks pegs the fiscal deficit at 5.9%, while rating agency ICRA expects the fiscal deficit to be at 5.8% in FY24.