Government may rein in fiscal deficit at 6.8% of GDP: First Advance Estimates
– World Affairs SRS
The lever to the government was given by the first advance estimates, which put the GDP at current prices at Rs 232.15 trillion for 2021-22, as against the budget estimate of Rs 222.87 trillion. The new GDP numbers will be used in the upcoming budget to replace various figures in the Revised Estimates as compared to the Budget Estimates for FY22.
The budget had assumed a growth rate of 14.4 per cent from Rs 194.82 trillion of GDP estimated by the first advance estimates for 2020-21. Meanwhile, GDP at current prices stood at Rs 197.46 trillion for 2020-21, up by Rs 2.64 trillion from earlier advance estimates at that time.
The first advance estimates have now pegged GDP growth at 17.6 per cent at current prices for 2021-22, which is divided into expansion of GDP at 9.2 per cent at constant prices and 8.4 per cent for inflation.
The fiscal deficit can now be increased to Rs 15.78 lakh crore from the estimated Rs 15.07 lakh crore and still the target of keeping the budget estimate at 6.8 per cent can be met.
The issue, however, is that the government will spend Rs 3.28 lakh crore, not just Rs 71,000 crore on the budget estimate, for which it has already got parliamentary nod through two batches of Supplementary Demands for Grants. Of this, Rs 1.75 lakh crore is expected to come from buoyant tax receipts and RBI dividend.
Tax collections after transfers to states stood at Rs 11.35 trillion till November-end, which was 73.5 per cent of BE at Rs 15.45 trillion in the current fiscal. It constituted 42.1 per cent of BE in the last financial year and 45.5 per cent in FY20. On the other hand, non-tax revenue, which includes RBI’s dividend, stood at Rs 2.23 trillion, up 91.8 per cent from BE at Rs 2.43 trillion. It constituted 32.3 per cent of BE in the corresponding period of FY 2011 and 74.3 per cent in FY 2010.
Most of the additional expenditure of Rs 1.53 trillion is expected to match the savings of departments that will not spend the amount allocated to them in the budget.
Thus, the government was in a comfortable position to control its fiscal deficit at 6.8 per cent of GDP. However, the government’s disinvestment receipts have not progressed as per the budget estimates. Rs 1.75 lakh crore was estimated to come from this item in the budget, but so far only Rs 9,330 crore has been received.
The government is eyeing Rs 1.45 lakh crore from LIC’s IPO and BPCL’s privatization. Of these two big disinvestments, BPCL’s disinvestment is set to be deferred, while LIC’s IPO may come by March, giving the government Rs 1 trillion.
India Ratings Chief Economist Devendra Pant said the government will improve its projections by holding its fiscal deficit to 6.6 per cent of GDP in FY12. He estimated this number assuming that the disinvestment would yield only Rs 45,000-50,000 crore.
However, Aditi Nair, chief economist at ICRA Ratings, said if the LIC IPO sees the light of day in the current fiscal, the government would be able to keep the fiscal deficit at 6.8 per cent of GDP.
EY India Chief Policy Adviser DK Srivastava said with an increase in tax revenue, the government may be able to limit the fiscal deficit to the budgeted level of 6.8 per cent of GDP, though a slight fall cannot be ruled out. .
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