Economists expect govt to miss FY23 fisc gap aim post excise duty cut

Informist, Monday, May 23, 2022


NEW DELHI – Most economists expect the government to miss its fiscal deficit target for 2022-23 (Apr-Mar) due to recent measures to control runaway inflation, primarily the cut in excise duty on petrol and diesel. 

They peg the fiscal deficit for the year at 6.7-6.9% of GDP, against the Budget estimate of 6.4% of GDP, or 16.61 trln rupees. 


On Saturday, Finance Minister Nirmala Sitharaman had announced a reduction of 8 rupees per ltr in excise duty on petrol, and 6 rupees per ltr on diesel, as well as subsidy of 200 rupees per cylinder of cooking gas under the Pradhan Mantri Ujjwala Yojana, among other measures. 


The cut in excise duty and the subsidy on cylinders will have a revenue impact of 1.06 trln rupees per year.


"We expect fiscal headwinds (excise cuts, higher food and fertiliser subsidies, lower dividends and disinvestments) to offset the tailwinds (higher tax revenues and higher nominal GDP growth)," Nomura said in a report. It has pegged the fiscal deficit for 2022-23 at 6.8%.


The government's subsidy bill has already gone up by 1.9 trln rupees in the current financial year on account of an increase in subsidy on fertilisers and food. 


The overall fiscal deficit is likely to exceed the Budget estimate by at least 2 trln rupees, Barclays said in a report.


Some economists, while acknowledging the upside risks to the fiscal deficit aim, did not put a number to it, saying it was difficult to assess government finances just two months into the fiscal year.


"There is a high risk of fiscal slippage, but we will have to watch out the trends on revenue and expenditure compression before we can quantify it," said Anubhuti Sahay, economic research head – South Asia at Standard Chartered Bank. "We are just two months in the fiscal, it's difficult to give a range."


Earlier today, a senior finance ministry official told Informist that it was "too early" in the year to consider if extra borrowing would be needed to offset the loss in revenue. "We are only two months into the year, and we have completed only a small part of the annual borrowing announced in the Budget," the official said.


The Centre, the official said, could make up for the reduction in excise collections through other sources of revenue, or by lowering its expenditure, rather than resorting to additional market borrowing straightaway.



Most economists, however, maintained their forecast for inflation due to upward pressure from sectors other than petroleum, steel, and cement, on which the measures were announced.


"Higher food inflation, a pending rise in electricity tariffs, the continued passage of higher input costs from firms to consumers and other second-round effects–such as house rents, wages–are likely to drive inflation," Nomura said.


The following table gives the expectations of economists on fiscal deficit for 2022-23 and on average inflation.


OrganisationProjection for fiscal deficit in FY23  Previous forecast for CPI inflation Revised forecast for CPI inflation
QuantEco Research6.4% (upside risk)6.1-6.3%6.1-6.3%
IDFC First Bank6.7%6.7%6.7%
HDFC Bank6.8%6.8-7.%6.4-6.6%
Standard Chartered Bank6.4% (upside risk)
Bank of America6.4% (with 40-50 bps slippage risk)6.7%6.7%




Reported by Priyansh Verma and Nikunj Chaudhary

Edited by Avishek Dutta


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