Lower Capex Target May Offset Shortfall In Disinvestment And Taxes

There is an anticipated miss in capex target in GoI fiscal numbers, which is expected to offset any shortfall on account of disinvestment and taxes. The government's fiscal deficit stood at Rs. 8.5 trillion or 52.5 per cent of the FY25 of the Rs. 16.13 lakh crore budget in April-November. This is 6.6 per cent lower than the Rs. 9.1 trillion recorded in April-November FY24. In April-November, the net tax revenues rose by a marginal 0.5 per cent as it was dampened by the additional devolution of taxes to the states, non-tax revenues expanded by around 50 per cent boosted by the RBI dividend and revenue expenditure grew by 7.8 per cent. In the meanwhile, capex continued to contract by 12.3 per cent.

The gross tax collections rose by 10 per cent in November. While corporate tax collections have been anemic, falling by one per cent, income tax collections expanded by 24 per cent during this period, although these trends may have been partly distorted by the timing of refunds. Credit rating agency Icra opines that income tax collections may surpass the year’s expectation of Rs. 11.5 trillion, unless large refunds are released in the latter part of the fiscal.

Icra feels that corporation tax inflows may print in line or slightly lower than the target. Revenue expenditure rose by a mere one per cent last November, whereas capital expenditure displayed a healthy 21 per cent expansion, albeit on a modest base. The GoI’s capex needs to expand by 65 per cent in December-March or record a monthly average run rate of Rs. 1.5 trillion, to meet the FY25 expectation, which, as things stand, appears increasingly daunting. Analysts are apprehensive that the capex target of Rs. 11.1 trillion for FY025 will be missed by a margin of Rs. 1-1.5 trillion.

The anticipated miss in the capex target is expected to offset any shortfall on account of disinvestment and taxes, as well as the impact of the recent supplementary demand for grants. Accordingly, experts expect the fiscal deficit to mildly trail the FY25 expectation of Rs. 16.1 trillion or 4.9 per cent of GDP. Gross tax revenue is at Rs 22.61 lakh crore as against Rs. 20.42 lakh crore last year. The total expenditure was Rs. 27.41 lakh while it was Rs. 26.52 lakh crore last year. Fiscal deficit currently stands at 8.47 lac crore versus 9.07 lac crore. Total receipts are at Rs. 18.94 crore against last year’s Rs. 17.46 crore. Capital expenditure, as per Finrex Treasury Advisors, is still down at Rs. 5.14 lakh crore against a budget of Rs. 11.11 lakh crore.

Capex has remained muted despite expectations of a pick-up. With slow capex, as per Emkay, the implied asking rate for the rest of the year has risen to 65 per cent, with the monthly required run-rate at a whopping Rs. 1.5 trillion. Possibly higher revex will be offset by lower capex than budgeted, with November also being a disappointing month, overall.