Fiscal Deficit

The fiscal deficit of the Union Government, which reached 9.2 per cent of GDP during the pandemic year FY21, has moderated to 6.7 per cent of GDP in FY22 PA (Provisional Actual) and is further budgeted to reach 6.4 per cent of GDP in FY23.

Tax Collection

  • The Gross Tax Revenue (GTR) to the Centre was envisaged to grow at 9.6 per cent in FY23 BE relative to FY22 RE.
  • After plummeting during the pandemic-affected year FY21, revenue receipts registered robust growth in FY22 PA, both on a YoY basis and to the pre-pandemic year FY20.

Direct Tax

  • Direct taxes, which broadly constitute half of the Gross Tax Revenue have registered a YoY growth of 26 per cent from April to November 2022, enabled by corporate and personal income tax growth.

Excise Duty

  • The government reduced the excise duty in November 2021 and May 2022 to control the pass-through of the rising global oil prices on the consumers.
  • Rise in prices of essential imported products during FY23, customs duties were brought down on several items to control the inflation impact on edible oils, pulses, cotton, steel, etc.
  • The budget estimate had factored in negative growth of 15 per cent on excise collections for FY23.

GST

  • The Goods and Services Tax (GST) has evolved and stabilised as a vital revenue source for central and state governments.
  • The gross GST collections, taken together, were Rs.13.40 lakh crore from April to December 2022. Thus, implying a YoY growth of 24.8 per cent.

Interest Receipts

  • Non-tax revenue to the Centre mainly includes interest receipts on loans to States and Union Territories, dividends and profits from Public Sector Enterprises and the Reserve Bank of India, and external grants and receipts for services the Union Government provides.
  • Budget FY23 envisaged a lower collection of non-tax revenue receipts during the current year relative to FY22 (around 22.5 per cent lower than FY22 PA)

Government Expenditure

  • The total expenditure of the Union Government in FY21 rose to 17.7 per cent of GDP, higher than the previous 5-year average of 12.8 per cent of GDP.
  • In the subsequent year, FY22, the total Union Government expenditure was brought down to 16 per cent of GDP (PA), and a more significant proportion of this accrued to capital expenditure.
  • Centre's revenue expenditure includes Interest payments, major subsidies, salaries of Government employees, pensions, defence revenue expenditure, and transfers to States.
  • With the winding up of the pandemic-related support, the revenue expenditure of the Union government was brought down from 15.6 per cent of GDP in the pandemic year FY21 to 13.5 per cent of GDP in FY22 PA.

State Fiscal Deficit

  • State Governments improved their finances in FY22 after being adversely impacted by the pandemic in FY21. The combined Gross Fiscal Deficit (GFD) of the States, which increased to 4.1 per cent of GDP in the pandemic-affected year, was brought down to 2.8 per cent in FY22 PA.

Cooperative Fiscal Federalism

  • Transfer of funds to the States comprises the share of States in Union taxes devolved to the States, Finance Commission Grants, Centrally Sponsored Schemes (CSS), and other transfers. Total transfers to States have risen between FY19 and FY23 BE.
  • The devolution factor is taken as 0.32 from FY13 to FY15; 0.42 from FY16 to FY20; and 0.41 from FY21 onwards, as per the recommendation of the respective Finance Commission.
  • IGST for States is taken as 50% of total IGST collection.
  • State's share in Centre's GST is arrived by multiplying the devolution factor with CGST and Centre's IGST share.
  • The collection for FY23 have been extrapolated based on the average collections from May to Dec 2022.

Debt Profile of the Government

  • Given the unprecedented fiscal expansion in 2020, rising government liabilities have emerged as a significant concern across the globe. Total liabilities of the Union Government moderated from 59.2 per cent of GDP in FY21 to 56.7 per cent in FY22 (P).
  • IMF projects the global government debt at 91 per cent of GDP in 2022, about 7.5 percentage points above the pre-pandemic levels.

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