The dextrous math behind narrowing fiscal deficit target


New Delhi: Finance minister Nirmala Sitharaman’s tightrope walk in pegging the fiscal deficit at 5.9% of GDP for 2023-24 despite increased government spending was described on Wednesday as a piece of “dextrous fiscal math”, eased by lower allocations for subsidies and rural jobs schemes.

A sharp 28% reduction in subsidy allocation in 2023-24 compared with the revised estimates for FY23 and a lower outlay on schemes such as the National Rural Employment Generation programme could explain the math behind the budget’s headline numbers.

The subsidy outlay for fertilizers was cut from 2.25 trillion in 2022-23 to 1.75 trillion, a 22% reduction, while that for food was cut 31% from 2.87 trillion as per revised estimates to 1.97 trillion.

The petroleum subsidy saw a 75% reduction in allocation from 9,170 crore to 6,913 crore. Overall, total subsidies, which had spiked over the last couple of years on account of the pandemic and the geopolitical crisis due to the Ukraine war, have seen a reduction in 2023-24. While the pandemic led to an increase in food subsidies over the last two years, the Ukraine war disrupted global supply chains causing a spike in the fertilizer and energy bill.

“The government has quite dexterously managed the fiscal math by starting with the fiscal deficit number and then working on reallocating outlays,” said Madan Sabnavis, chief economist, Bank of Baroda. Hence, while capex has increased smartly, there are major savings on subsidies of almost 1.4 trillion. Further, NREGA has been pruned to save another 20,000 crore, he said.

“Budgeting is always a zero-sum game and if taxes have not been raised to garner revenue and expenses have increased, it has to be through cutting other heads,” said Sabnavis.

The budget lowered the allocation to the Mahatma Gandhi National Rural Employment Guarantee Program (MGNREGP) scheme to 60,000 crore, a 32% reduction from 89,400 crore estimated in the revised budget estimate for 2022-23.

The government estimated a nominal GDP growth at 10.5%, which according to experts is quite modest, and may provide a further cushion to rein in the fiscal deficit ratio for FY24.

To finance the fiscal deficit in 2023-24, the Centre will borrow a record 15.43 trillion from the markets in 2023-24, which is 3.2% higher than current year’s budget estimate of 14.95 trillion.

The government has set a disinvestment target at 51,000 crore for FY24, lower than the previous financial year. “The fiscal deficit targeted in the FY24 be is slightly higher than our projections, although this is on account of the welcome and unexpectedly strong jump in capex…However, the budgeted tax revenue growth may prove to be slightly optimistic,” said Aditi Nayar, chief economist, ICRA.

The sharp fiscal consolidation proposed for FY24 is despite a multi-year high capital expenditure allocation as a share of total outlay at 22% estimated for FY24 compared to 19% in the previous year, while revenue receipts are estimated to grow by 12.39% in 2023-24.


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Updated: 02 Feb 2023, 05:43 AM IST

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