May’s lower spending pegs fiscal deficit at 8.2%

Increase in revenue receipts in first two months also helps

India’s fiscal deficit in the first two months of 2021-22 stood at 8.2% of the Budget target with revenue receipts rising even as spending contracted by the end of May, data released by the Controller General of Accounts on Wednesday show.

Economists said capital spending contracted by 41% in May after a sharp uptick in April, indicating that State-level restrictions during the second wave of the pandemic had hurt economic activity. They, however, cautioned against interpreting the outcomes over April and May.

“Benefitting from a jump in tax and non-tax receipts amidst a contraction in revenue expenditure, the Government of India’s fiscal deficit was limited to ₹1.2 lakh crore in April-May 2021, less than 30% of last-year’s level of ₹4.7 lakh crore during the nationwide lockdown,” Aditi Nayar, chief economist at ICRA, wrote in a note.

Sunil Kumar Sinha, India Ratings’ principal economist, said the revenue and expenditure trends of the first two months were unlikely to provide any clarity on the year’s fiscal deficit.

“April and May 2020 were unusual months due to the nationwide lockdown and again April and May 2021 witnessed regional/local lockdowns resulting in loss of economic activities and revenue generation. Further, the change in the Reserve Bank of India’s accounting year to April-March from July-June has advanced the release of its dividend payment to government. As a result, non-tax revenue collections have already reached 47.9% of this year’s Budget estimates,” Mr. Sinha said.

Ms. Nayar said the RBI’s dividend and the prepayment of Food Corporation of India’s liabilities of about ₹1 lakh crore last year, had created a cushion of ₹1.5-1.6 lakh crore, which would be able to cover the costs of free foodgrains, higher fertiliser subsidies and the relief measures announced by the government on Monday.

“We do not foresee a material undershooting of the targeted tax collections, even with some eventual reduction in excise duty on fuels,” she said, adding that the ₹1.75 lakh crore disinvestment plan’s outcomes would play a key role in determining the extent by which this year’s ₹15.1 lakh crore fiscal deficit target, or 6.7% of estimated GDP, would likely be missed.

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