The Center could meet the 6.4 percent budget deficit target for 2022-23 if there are no tax cuts to lower high oil prices and additional spending on subsidies, a German brokerage firm said Thursday.
Meeting the budgeted target will be possible if excise cuts are not continued, said Deutsche Bank chief economist Kaushik Das.
The note said that recent cuts in excise taxes, combined with increased spending on fertilizers, food and fuel subsidies, have resulted in “upside risks” to the budget deficit target.
“…our analysis of the current budget calculation suggests that the central government may still be able to keep the budget deficit for FY23 close to the target of 6.4 percent of GDP, assuming no further tax cuts and/or additional spending on grants over and above what has already been announced,” it said.
However, it will be a “different story” if the price of crude oil rises to more than USD 150 a barrel during the year, the company said, noting that the budget deficit could otherwise widen beyond target levels.
The brokerage said its home believes the budget deficit is 6.5 percent of GDP.
Clarity on whether the fiscal target can be met or not, and whether to increase market lending from the current target of Rs 14.31 lakh crore, will only become clearer in the second half of the budget, when the government has sufficient data on the revenue and expenditure front, it said.
A list of the factors raising concerns about the fiscal situation said that the government has cut central excise tax on petrol by Rs 8 per liter and diesel by Rs 6 per liter, the allocation of expenditure on fertilizer subsidies has been increased by Rs 1, 1 lakh crore and a Rs 61,000 crore scheme on cooking gas was also announced.
The note stated that the actual revenue collection was found to be higher than the revised estimates in FY22, which will make it easier to meet the revenue estimates for FY23 in absolute terms, but added that the actual expenditure also turned out to be higher than the estimates.
In FY23, the total revenue collections could be down by about Rs 24,500 crore, given the impact of the measures mentioned above, it said, adding the spending compression is still unlikely to meet the additional subsidy bill increase of Rs 2 lakh crore, which means we should expect a total expenditure overrun of at least Rs 1.3 lakh crore, it said.
The budget deficit in FY23 could potentially be higher at Rs 1.5 lakh crore or 7 percent of GDP when calculated on the lower nominal GDP base in the budget (which assumes only 11.1 percent growth), but it budget deficit amounts to 6.54 per year. cents, using a larger nominal GDP base, based on a realistic assumption of 17-18 percent yoy (year-over-year) growth, it said.
