Decoding FM Nirmala Sitharaman's Budget math: Here's how the govt can maintain healthy fiscal deficit target

Finance Minister Nirmala Sitharaman has been able to push through record capital spending allocation while simultaneously maintaining the fiscal consolidation road plan because of significant savings in the subsidy bill and also somewhat optimistic assumptions on the non-tax revenues as well as tax revenues.

Let's take a look.

The subsidy bill for food, fertiliser, and fuel has gone down by a staggering 28 per cent from Rs. 5.21 lakh crore in 2022–23 to Rs. 3.74 lakh crore in 2023–24.  It offers a cool savings of Rs. 1.47 lakh crore in the revenue expenditure. The major reduction in the overall subsidy has come from food as the free ration scheme started post Covid has been discontinued. There is also a steep decline in fertiliser subsidy, which shot up immediately after the Russia -Ukraine war.

There is a massive reduction in Mahatma Gandhi National Rural Employment Guarantee Scheme ( MGNREGA) from Rs 89,400 crore as per the revised estimates of 2022-23 to Rs 60,000 crore allocated in 2023-24.

There is a reduction of 32 per cent from the revised estimates and 17.80 per cent from the budgeted estimates of 2022-23.

Similarly, the allocation for PM Kisan has gone down from Rs 68,000 crore as per revised estimates of 2022-23 to Rs 60,000 crore budgeted in 2023-24. This represents a decline of 11.76 per cent.

The food subsidy to Food Corporation of India (FCI) has been cut by 36 per cent from Rs 2.14 lakh crore as per revised estimate of 2022-23 to Rs 1.37 lakh crore budgeted in 2023-24.

In the same period,  the nutrients-based subsidy bill has been cut by a massive 38 per cent from Rs 71,122 crore to Rs 44,000 crore.

The urea subsidy has been reduced by 15 per cent from Rs 1.54 lakh crore as per revised estimates of 2022-23 to Rs 1.31 lakh crore budgeted in 2023-24.

According to budget numbers , the expenditure on revenue account is budgeted to grow at a marginal rate of 1.27 per cent in 2023-24.  This will grow from Rs 34.58 lakh crore as per revised estimates of 2022-23 to Rs 35.02 lakh crore in 2023-24. 

The growth in the expenditure on revenue account in 2022-23 is growing by 8.06 per cent to Rs 34.58 lakh crore in 2022-23 from Rs 32 lakh crore as per revised estimates of 2021-22. 

The non-tax revenues growth at 15.32 per cent budgeted in 2023-24 looks quite optimistic. Imagine a decline of 28.49 per cent in the revised estimates of Rs 2.61 lakh crore non tax revenues in 2022-23 as compared to Rs 3.65 lakh crore in 2021-22.

The non-tax revenues , however , are budgeted at Rs 3.01 lakh crore in 2023-24 as compared to actuals of Rs 2.61 lakh crore in 2022-23. There is no clarity on disinvestments , but the FM has specified interest earned, dividends as two big items under the non-tax revenues.

Namrata Mittal, CFA & Senior Economist, SBI MF says the quality of expenditure has improved with capital expenditure to GDP improving to 3.3 per cent of GDP as compared to sub 2.0 per cent level during pre-covid days. "Investment in capital expenditure would result in boosting productivity over medium term and help in bringing down inflation structurally," believes Deepak Agrawal, CIO-Debt, Kotak Mahindra Asset Management Company.

The gross tax revenues have witnessed a growth of 12.3 per cent at a time when the nominal growth in the economy is recorded at around 13.7 per cent in 2022-23.

However, the budgeted gross revenues for 2023-24 are showing a growth of 10.41 per cent when the nominal growth is expected to fall to 10.5 to 11.7 per cent in 2023-24.  

Some experts argue that the assumption of 10.41 per cent growth in tax revenues is on a higher side as global economy is expected to slip into recession. The full impact of higher interest rates and elevated inflation in the domestic market will be felt in 2023-24.

The US Federal Reserve is also not yet done on rate hikes. The global rates are expected to remain elevated in the current year.

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