The government may be staring at a modest slippage in fiscal deficit for 2022-23 (FY23), with the Ministry of Finance seeking parliamentary approval for additional spending through a second and final tranche of supplementary demands for grants.
As the Budget session of Parliament resumed, Finance Minister Nirmala Sitharaman sought Parliament approval for additional gross spending of Rs 2.7 trillion in FY23 (which ends on March 31).
While net cash outgo is pegged at Rs 1.48 trillion, the rest will be matched by savings or enhanced receipts, the finance ministry said.
In December last year, the finance ministry got parliamentary approval to spend an additional Rs 3.26 trillion (net cash outgo) under the first tranche of supplementary demands for grants for FY23.
The additional spending demands are dominated by fertiliser subsidies, defence pensions, the allocation for universal service obligation fund (USOF), and the goods and services tax (GST) compensation to states and Union Territories (UTs).
Aditi Nayar, chief economist at ICRA, said although a portion of the net cash outgo may be offset by savings under other heads, it has raised the likelihood of a modest slippage relative to the Revised Estimates of FY23 fiscal deficit of Rs 17.6 trillion.
“Regardless, bond yields are likely to take cues from global yields and the expectations of monetary tightening at the upcoming policy review,” she added.
With the National Statistical Office revising down the nominal gross domestic product (GDP) estimate for FY23 by more than Rs 1 trillion to Rs 272 trillion, the fiscal deficit was already expected to be a little over the budgeted 6.44 per cent of GDP.
The additional expenditure commitment may take the fiscal deficit close to 7 per cent unless matched by internal savings or higher-than-estimated revenue collections.
Of the total Rs 36,325 crore sought for fertiliser subsidy, Rs 21,000 crore has been allocated for phosphatic and potassic and Rs 15,325 crore for urea.
This is over and above Rs 2.1 trillion allocated for fertiliser subsidy for FY23.
The additional allocation is meant to help insulate farmers from the impact of a steep increase in the cost of fertilisers due to sharp rise in international prices of fertilisers.
The government has sought Rs 25,000 crore for additional transfers to USOF for providing telecommunication services in rural and remote areas.
For meeting an additional expenditure for provision for payment of regular pension due to enhanced One Rank, One Pension, Rs 33,718 crore has been sought.
For the additional release of GST compensation to states and UTs, the finance ministry has allocated Rs 36,325 crore, while for clearing the pending liability of election-related expenditure towards states/UTs, Rs 3,166 crore has been granted.
