The government will peg its fiscal deficit in the FY2024 Budget Estimates (BE) at 5.8 per cent of the GDP, a healthy moderation from the 6.4 per cent of GDP projected for FY2023, according to a report by ratings agency ICRA. It added that with higher redemptions, the report expects the gross market borrowings of the government and the general government to rise to Rs 14.8 lakh crore and Rs 24.4 lakh crore, respectively, in FY2024 from Rs 14.1 lakh crore and Rs 22.1 lakh crore, respectively, in FY2023.
Aditi Nayar, chief economist and head (research and outreach) of ICRA, said, “With a global growth slowdown looming large, the FY2024 Union Budget needs to focus on sustaining the domestic growth momentum, while at the same time demonstrating a continued commitment towards fiscal consolidation in addition to limiting the rise in the market borrowings.”
She added that the Union Budget FY2024 can appreciably enhance the government’s capital expenditure to Rs 8.5-9 lakh crore and target a lower fiscal deficit of 5.8 per cent of GDP, aided by the welcome cushion offered by lower subsidies. Despite this, higher redemptions will enlarge its gross dated market borrowings to Rs 14.8 lakh crore in FY2024 from Rs 14.1 lakh crore in FY2023.
Aided by robust direct tax collections and GST inflows, ICRA expects the government’s net tax receipts to overshoot the budgeted amount by a healthy Rs 2.1 lakh crore in FY2023. This, combined with expenditure savings to the tune of Rs 1 lakh crore along the lines seen over the past 5-6 years on average, is expected to partly offset the sizeable net cash outgo announced in the First Supplementary Demand for Grants and the shortfall in non-tax revenues and disinvestment receipts.
The report expects the government’s fiscal deficit to print at Rs 17.5 lakh crore in FY2023, exceeding the budgeted amount of Rs 16.6 lakh crore. However, a larger-than-estimated GDP would allow the fiscal deficit to remain at the budgeted target of 6.4 per cent of GDP.
ICRA estimates the government’s gross tax revenues (GTR) in FY2024 at Rs 34 lakh crore, a YoY expansion of 9.4 per cent (over the projected level for FY2023), with growth in direct taxes likely to outpace that in indirect taxes. The latter is expected to be constrained by customs duty collections and reversion of excise duty on auto fuels to pre-COVID-19 levels.
The estimated growth in GTR is similar to ICRA’s nominal GDP growth forecast of 10 per cent for FY2024, implying a tax buoyancy of about 1, in line with the decadal average seen during FY2010-19.
The ratings agency projects the GoI to target double-digit growth in capital expenditure to Rs 8.5-9 lakh crore in FY2024, relative to the level of Rs 7.5 lakh crore, expected in FY2023. In contrast, revenue spending is expected to rise by a relatively muted nearly 3 per cent, dampened by a lower outgo on account of the food and fertiliser subsidy.
While ICRA expects the government’s revenue deficit to recede to Rs 9.5 lakh crore in FY2024 from Rs 10.5 lakh crore in FY2023, the fiscal deficit would dip only mildly to Rs 17.3 lakh crore from Rs 17.5 lakh crore, respectively, led by higher capex. Nevertheless, as a proportion of GDP, the fiscal deficit is expected to ease to 5.8 per cent from 6.4 per cent, respectively.
Nayar said, “The quality of spending and of the fiscal deficit is expected to improve in FY2024 vis-à-vis FY2023, following the relatively faster growth foreseen in the GoI’s capex. However, the share of interest payments in total expenditure will remain elevated at about 24-25 per cent, owing to the sizeable increase in the GoI’s debt outstanding in the post-Covid period, underscoring the need to limit borrowings, going ahead.”
ICRA expects the government to place its net market borrowings in FY2024 at Rs 10.4 lakh crore, lower than Rs 10.9 lakh crore in FY2023. With higher redemptions, its gross market borrowings appear set to rise to Rs 14.8 lakh crore from Rs 14.1 lakh crore, respectively.
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