Despite the handsome growth in tax collections, there is a possibility of a fiscal slippage in FY24 because of higher spends on employment guarantee scheme and subsidies, a domestic rating agency said on Tuesday.
India Ratings and Research, which is a unit of international rating agency Fitch Ratings, said the fiscal deficit for FY24 will come at 6 per cent, as against the budgetary target of 5.9 per cent.
"Higher-than-budgeted revenue expenditure triggered through the first and likely second supplementary demand for grants in combination with lower-than-budgeted nominal GDP will push the fiscal deficit," the agency said in a note.
It said the fiscal slippage will happen despite higher tax and non-tax revenue collections, and also added that these will be more than sufficient to offset the lower-than-budgeted divestment proceeds.
In the first supplementary demand, the union government will spend more on prioritised areas/sectors such as food, fertiliser and LPG subsidy and Mahatma Gandhi National Rural Employment Guarantee Scheme, it said, giving out details of the overruns.
As against the budgeted nutrient-based fertiliser subsidy of Rs 44,000 crore, the union government has now increased the fertiliser subsidy to Rs 57,360 crore, as the budgeted amount was almost over by end-October 2023, it said.
Similarly, realising the sustained demand for employment under Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), whereby a sum of Rs 79,770 crore has already been spent till December 19, 2023, as against the budgeted Rs 60,000 crore, an additional sum of Rs 14,520 crore has been allocated through the first supplementary demand for grants, it added.
The agency said it expects tax revenue collections growth to exceed the budgeted projection at 11.7 per cent in FY24 due to the widening of tax base, better enforcement of compliance and use of technology in the tax collection process, and added that the amount collected in the April-October period is nearly 60 per cent of the budget estimate.
"We expect it to reach Rs 24.5 lakh crore in FY24, as against the budgeted Rs 23.3 lakh crore, clocking a growth rate of 17.2 per cent and helping tax/GDP ratio to reach 8.81 per cent, as against budgeted 7.72 per cent," its chief economist and head of public finance Devendra Pant said.
However, capital receipts are lagging at Rs 22,990 crore during April-October 2023, which is only 27.4 per cent of the FY24 budgeted amount, the agency said, adding that the government is struggling this year too for achieving the disinvestment target despite being modest in budgeting it at Rs 51,000 crore and has collected only Rs 8,000 crore till October.
On the expenditure front, the agency said the first supplementary demand for grants involving an additional cash outgo of Rs 58,380 crore will result in the revenue expenditure to grow at 2.8 per cent, as against the budgeted target of 1.2 per cent.
The agency said it believes the government will make a second supplementary demand for grants, as a result of which the revenue expenditure is expected to increase to Rs 37.1 lakh crore in FY24, which is Rs 2.0 lakh crore higher than the budgeted amount.
"Major reason for the increased expenditure is higher expenditure by a few select ministries/ departments and recouping of Rs 28,140 crore to the Contingency Fund of India which was drawn by 30 departments/ ministries as an advance in the past," it said.