ICRA expects GoI's gross tax revenues to exceed FY2022 BE by Rs 2 T
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Mumbai, Oct 02 Credit rating agency, ICRA expects GoI's gross tax revenues to exceed FY2022 BE by Rs 2 trillion. The healthy expansion in the GoI's gross tax revenues in H1 FY2022 relative to the pre-Covid level augurs that the upturn will sustain in the second half as well, even though a normalising base may dampen the pace of growth going forward, it says.
With a YoY expansion of 114 per cent in revenue receipts amidst a cautious 2 per cent rise in total expenditure, the GoI's fiscal deficit compressed to Rs 4.7 trillion in April-August 2021 from Rs 8.7 trillion in the year-ago period, while printing moderately lower than the Rs 5.5 trillion seen in the pre-Covid period of FY2020.
As expected, the pace of expansion of revenue receipts moderated to 114 per cent at end-August 2021 from the month-ago level of 194 per cent, as the base normalised with the progressive economic recovery last year, as well as the inflows of the RBI's surplus during August 2020.
Encouragingly, both revenue and capital spending saw a healthy increase in August 2021, more than offsetting the contraction seen in July 2021. Nevertheless, the GoI's revenue expenditure recorded a mild 2 per cent growth in July-August 2021, which suggests that government final consumption expenditure may weigh upon the GDP growth in Q2
FY2022, while the robust 31 per cent expansion in capital expenditure in this two month period will support the growth in gross fixed capital formation.
The transfer of surplus by the RBI to the GoI is around Rs. 500 billion higher than budgeted. Moreover, we expect modest inflows to commence in FY2022 from the National Monetisation Pipeline (NMP). However, following the package announced by the GoI for the telecom sector, we assess the inflows from this sector into the GoI's FY2022 non-tax revenues to be limited to Rs. 280 billion, trailing the budgeted Rs. 540 billion.
With all ministries now permitted to spend as per their own approved budget, we anticipate that spending will gather pace in the second half of this year. With the modest net fiscal cost of the first supplementary demand for grants, and the expected enhancement in the outlay for fertiliser subsidies for the rabi season as well as for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), we expect the GoI's total expenditure to exceed the FY2022 BE by around Rs. 500-600 billion.
The GoI's fiscal deficit in FY2022 is likely to be lower than budgeted, the extent of which will be driven by the size of the disinvestment inflows that are eventually realised. With the H2 FY2022 borrowings currently planned to be completed by February 2022, the GoI could potentially raise an additional ~Rs. 1.0 trillion through four weekly auctions in March 2022, in the event that a shortfall in disinvestment flows becomes imminent.
