RBI surplus transfer keeps fiscal in check

Fiscal deficit in May remained in check, with receipts supported by large surplus transfer by the Reserve Bank of India (RBI). Expenditure was buoyed by a healthy pace of capex in railways and roads. Accordingly, 2MFY23 fiscal deficit was in check at 11.8 per cent of GDP. For now, we see limited risks of fiscal slippage in FY24 and expect GFD/GDP at 5.9 per cent, in line with FY24BE. Coming to GST collections, it is likely to remain range-bound. GST collections for May were 11.7 per cent higher yoy at Rs. 1,615 bn from April; Rs. 1,571 bn a month ago, with CGST at Rs. 310 bn, SGST at Rs. 383 bn, IGST at Rs. 803 bn and compensation cess at Rs. 119 bn. After the distribution of IGST, May CGST and SGST revenues before refunds were at Rs. 672 bn and Rs. 686 bn, respectively. CGST + IGST collections are currently at a monthly run-rate of Rs. 658 bn in 2MFY24 with the required run rate at Rs. 683 bn.

A Kotak Institutional Equities study expects CGST collections to be close to the FY24BE target. RBI’s surplus transfer props up receipts; railways and roads push up capex. Gross tax revenue in 2MFY24 was 11.8 per cent of FY24BE and net tax revenue 11.9 per cent of FY24BE.

However, total receipts stood at 15.3 per cent of FY2024BE (8.9% higher than 2MFY23) due to a higher-than-budgeted surplus transfer by the RBI at Rs. 874 bn in May, which propped up non-tax revenues to 44.6 per cent of FY2024BE in 2MFY24.

Direct tax collection was led by personal income tax at 14.3 per cent of FY24BE, while corporate tax collection was lagging at 6.1 per cent of FY24BE, which is 28 per cent lower than 2MFY23). Indirect tax collection was 13.7 per cent of FY24BE amounting to 2 per cent higher than 2MFY23, propped up by CGST collections at 17.4 per cent of FY24BE, 24 per cent higher than 2MFY23.

The total expenditure in 2MFY24 was 13.9 per cent of FY24BE. This was boosted by capital expenditure at 16.8 per cent of FY24BE or 57 per cent higher than 2MFY23, buoyed by expenditure on railways at 23 per cent of FY24BE and expenditure on roads at 22 per cent of FY24BE. Revenue expenditure stood at 13.1 per cent of FY24BE.

Experts note that expenditure in May would have been lower if the RBI’s surplus transfer were in line with FY24BE at around Rs. 300 bn. There lie low fiscal slippage risks in FY24. Analysts see limited slippage risk in FY24 fiscal estimates.

The higher-than-budgeted RBI surplus transfer provides a substantial cushion. But this could be offset by a divestment shortfall, downside risks to tax receipts early trends show some weakness in corporate and excise collections, and/or need for higher spending busy election cycle. For now, one can see limited risks of fiscal slippage in FY24 and expect GFD/GDP at 5.9 per cent in line with FY24.