An incidental fiscal surplus

by Manasi Swamy

The central government reported a fiscal surplus of Rs.110.4 billion in July 2022. But this is incidental. It was aided by net credit of Rs.666.1 billion reported by the Department of Revenue under the Ministry of Finance for July 2022.

The Department of Revenue provides GST compensation to state governments. On May 31, 2022, it released GST compensation of Rs.870 billion for April and May. A bulk of this was financed through the Centre’s own revenues as GST compensation cess accruals at that time were only Rs.250 billion. The Department of Revenue seems to have returned this amount to the Consolidated Fund of India as compensation cess collections for June and July accrued. This has caused the surplus of Rs.110.4 billion. The Centre still owes Rs.350 billion GST compensation to states for June 2022.

The pay-back of funds by the Department of Revenue pulled down total revenue expenditure of the government for July 2022. Expenditure fell by 2.2 per cent compared to July 2021. Had it not been for the credit of the Department of Revenue, government expenditure would have grown at a robust pace of 34.3 per cent in July 2022 and revenue expenditure would have grown by 27.7 per cent.

Major revenue expenditure components reported a healthy growth in July 2022. Revenue expenditure by the Ministry of Rural Development, which runs the flagship rural employment guarantee scheme MGNREGS, increased year-on-year by 24.4 per cent and that on pension and police by 15 per cent and 10.4 per cent, respectively. Interest outgo, a component of revenue expenditure that is considered to be non-productive, increased by 33.1 per cent to Rs.552.8 billion in July 2022.

Outgo on three major subsidies food, fertiliser and petroleum more-than-doubled to Rs.417.3 billion in July 2022 from Rs.199.8 billion in July 2021. The growth was mainly driven by food and fertiliser subsidies. July 2022 was the first month in the current fiscal when the Centre disbursed petroleum subsidy. The amount, however, was too small Rs.1.4 billion, to make any significant contribution to total expenditure.

The Centre’s revenue transfers to the states and union territories remained strong in July 2022. Transfers to states and UTs with legislature increased year-on-year by 31.8 per cent and those to UTs without legislature rose by 27.5 per cent.

The Central Government’s capital expenditure nearly doubled to Rs.336 billion in July 2022 as compared to Rs.169.3 billion in July 2021. About 90 per cent of this was incurred on defence, railways and urban housing. The Ministry of Defence more-than-doubled its capital expenditure to Rs.157.7 billion in July 2022 from Rs.77.9 billion in the year-ago month. Capital expenditure by the Ministry of Railways and the Ministry of Housing & Urban Affairs increased manifolds in July 2022 to Rs.113.6 billion and Rs.24.7 billion, respectively, from Rs.27.7 billion and Rs.2 billion, in the same order in July 2021. The Ministry of Road Transport & Highways, which has got the biggest capital expenditure allocation of Rs.1.9 trillion for 2022-23, spent only Rs.387.3 million in July 2022.

The Centre’s non-debt receipts grew by a robust 39.7 per cent to Rs.1.9 trillion in July 2022 over July 2021. Net tax collections, the primary source of revenue for the Centre, increased year-on-year by 37.6 per cent to Rs.1.6 trillion in July 2022. Income tax, corporation tax and GST collections recorded stellar growth. Non-tax revenue too more-than-doubled to Rs.274.2 billion in July 2022 from Rs.126.4 billion in July 2021. The growth in these two revenue streams was so strong that the Centre managed to achieve 8.3 per cent of its full year’s non-debt receipts target in July 2022 even in absence of any disinvestment proceeds.

The Centre’s revenue collection has been strong so far in the current fiscal. Non-debt receipts grew year-on-year by 15 per cent to Rs.7.9 trillion during April-July 2022. This is 34.4 per cent of its full year’s non-debt receipts target. The performance was exceptional. Historical data shows that the Centre manages to garner less than 20 per cent of its budgeted non-debt receipts in the first four months of a fiscal.

We expect the year-on-year growth in non-debt receipts, particularly tax collections, to decelerate going forward, as inflation eases and global economy slows down. Yet, non-debt receipts are likely to overshoot their budgeted target for 2022-23 by about Rs.1.2-1.5 trillion.

The government has so far i.e. till July 2022 utilised 28.6 per cent of its full-year expenditure allocation for 2022-23. This is the lowest in last eight years. The government has already announced additional expenditure for 2022-23 over the budgeted amount of Rs.39.4 trillion. In March 2022, it allocated Rs.850 billion for extension of the Pradhan Mantri Garib Kalyan Anna Yojana (PMGKAY) by six months till September 2022 and in May 2022, it announced fertiliser subsidy of Rs.1.1 trillion, over and above the budgeted Rs.1.05 trillion for 2022-23. The government has saved Rs.300 billion due to lower-than-targeted procurement of wheat. Even after accounting for shaving off of some “avoidable spending”, as suggested by Finance secretary T.V. Somanathan, total expenditure of the government in 2022-23 will likely overshoot its budget estimates by Rs.1.3-1.6 trillion.

The Centre has arrested its gross fiscal deficit during the first four months of 2022-23 at 20.5 per cent of its annual budgeted target. This was its tightest fiscal performance in at least the last two-and-a-half decade. Going forward, the deficit is expected to increase at a faster pace. Yet, it is unlikely to overshoot its budgeted target of 6.4 per cent of GDP for 2022-23.

CMIE STATISTICS
Unemployment Rate (30-DAY MVG. AVG.)
Per cent
6.5 +0.1
Consumer Sentiments Index
Base September-December 2015
78.9 +0.7
Consumer Expectations Index
Base September-December 2015
77.3 +0.4
Current Economic Conditions Index
Base September-December 2015
81.5 +1.1
Quarterly CapEx Aggregates
(Rs.trillion) Dec 21 Mar 22 Jun 22 Sep 22
New projects 4.03 8.48 4.39 3.27
Completed projects 2.77 1.32 1.20 1.14
Stalled projects 0.08 0.43 0.27 0.06
Revived projects 1.98 0.32 0.29 0.07
Implementation stalled projects 0.66 0.09 0.29 0.03
Updated on: 06 Oct 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Sep 21 Dec 21 Mar 22 Jun 22
All listed Companies
 Income 27.5 23.4 20.8 40.3
 Expenses 26.7 21.3 19.9 41.7
 Net profit 55.7 35.4 30.6 20.4
 PAT margin (%) 9.6 9.0 8.8 7.3
 Count of Cos. 4,705 4,754 4,656 4,572
Non-financial Companies
 Income 35.7 29.2 24.8 50.3
 Expenses 36.1 28.8 25.7 53.4
 Net profit 58.0 19.2 9.8 7.8
 PAT margin (%) 8.7 7.5 7.6 5.9
 Net fixed assets 4.9 2.0
 Current assets 11.1 15.2
 Current liabilities 0.9 11.9
 Borrowings 12.2 3.6
 Reserves & surplus 12.6 11.2
 Count of Cos. 3,398 3,443 3,382 3,354
Numbers are net of P&E
Updated on: 06 Oct 2022 8:28PM
Annual Financials of All Companies
(% change) FY20 FY21 FY22
All Companies
 Income 0.6 -1.0 25.9
 Expenses 0.4 -3.2 24.4
 Net profit -6.2 73.6 62.9
 PAT margin (%) 2.0 4.3 8.6
 Assets 9.0 9.9 9.6
 Net worth 4.8 12.0 14.2
 RONW (%) 3.3 6.8 12.4
 Count of Cos. 32,743 31,040 6,560
Non-financial Companies
 Income -1.1 -2.0 32.4
 Expenses -0.9 -3.9 31.9
 Net profit -22.5 61.2 59.8
 PAT margin (%) 2.2 3.9 7.4
 Net fixed assets 11.4 2.3 1.9
 Net worth 2.1 10.3 14.7
 RONW (%) 4.6 7.6 13.8
 Debt / Equity (times) 1.2 1.0 0.7
 Interest cover (times) 1.9 2.4 4.7
 Net working capital cycle (days) 82 87 54
 Count of Cos. 25,923 24,408 4,771
Numbers are net of P&E
Updated on: 05 Oct 2022 12:29PM