India's Fiscal Deficit for April-August Expands to Rs 6.43 Lakh Crore Amidst Surging Tax Collections

30 Sep, 2023

India's Fiscal Deficit for April-August Expands to Rs 6.43 Lakh Crore Amidst Surging Tax Collections

India's fiscal deficit widened to Rs 6.43 lakh crore during April-August, up from Rs 6.06 lakh crore in the preceding April-July period, as revealed by data released by the Controller General of Accounts on September 29.

The fiscal deficit for the first five months of the current financial year now accounts for 36.0 percent of the full-year target of Rs 17.87 lakh crore. For April-August 2022, the fiscal deficit stood at 32.6 percent of the target for the fiscal year 2022-23.

August saw a significant improvement, with the Centre's fiscal deficit shrinking to just Rs 37,233 crore, marking an 81 percent reduction compared to the same month the previous year. This positive development can be attributed to total receipts surging four-fold to Rs 2.54 lakh crore, driven by a substantial increase in net tax revenues, which rose by more than six-and-a-half times to Rs 2.21 lakh crore.

Notably, the remarkable year-on-year surge in net tax revenues in August was propelled by both higher tax collections and reduced tax devolution to states. Corporate tax collections, in particular, rebounded strongly, increasing more than fivefold from August 2022 to Rs 62,817 crore—the second-highest monthly collection so far in the fiscal year 2023-24. Additionally, income tax collections more than quadrupled to Rs 1.03 lakh crore. Consequently, gross tax collections in August reached Rs 2.95 lakh crore, nearly double the amount recorded in the same month the previous year.

Despite the impressive tax revenue growth, the fiscal deficit in August was restrained by a smaller tax devolution to states, totaling Rs 72,961 crore, compared to Rs 1.17 lakh crore transferred in August 2022. However, the cumulative amount transferred to states in the current financial year has been higher at Rs 3.82 lakh crore, which reduces the Centre's net tax collections.

From April to August, the Centre's total receipts stood at Rs 10.29 lakh crore, reflecting a 21 percent increase, with corporate and income tax collections rising by 15 percent and 36 percent, respectively, compared to the same period in 2022. Non-tax revenue also remained robust, increasing by 79 percent year-on-year to Rs 2.10 lakh crore, driven by a larger-than-expected dividend transferred by the Reserve Bank of India (RBI) in May.

While government revenue experienced significant growth in August, total expenditure increased at a more moderate rate of 11 percent. However, capital expenditure saw a substantial 30 percent increase, reaching Rs 56,720 crore. For April-August, the Centre's capital expenditure increased by 48 percent to Rs 3.74 lakh crore, contributing to a 20 percent rise in total spending, which amounted to Rs 16.72 lakh crore.

These latest figures reinforce the government's confidence in meeting this year's fiscal deficit target of 5.9 percent of GDP. Aditi Nayar, Chief Economist at ICRA, expressed limited fiscal concerns at this stage, highlighting the unchanged market borrowing numbers for October 2023-March 2024, relative to the budget estimates. The finance ministry had announced on September 27 that the government would borrow Rs 6.55 lakh crore in the second half of 2023-24, aligning with the first-half borrowing calendar issued in late March.