According to a report by SBI Research, India’s fiscal deficit is likely to come close to 6.5 percent of GDP in the current fiscal year 2022-23, compared to the budget estimate of 6.4 percent. It has raised its current account deficit (CAD) estimate for the current fiscal year to 3.7 percent of GDP, from the earlier estimate of 3.2 percent.
The fiscal deficit has reached 21.2 percent of the annual target in Q1 FY23 as against 18.2 percent in Q1 FY22. Tax revenue has remained strong with record high GST revenues, driven by increased compliance and high economic activity. On the expenditure side, the government has done more capital expenditure (23.4 per cent of BE in FY23 as against 20.1 per cent of BE during the same period in FY22) which bodes well for our growth potential,” SBI Research said. said in their report, titled ‘Ecowrap’.
It added that GST collections have increased significantly this year, with monthly collections exceeding Rs 1.4 lakh crore for 5 consecutive months. The latest figure stood at Rs 1.49 lakh crore in July 2022, up 28 percent from the same month last year. Importantly, its estimate of inflation-adjusted GST revenue for FY23 shows that the average collection has been around Rs 1.20 lakh crore. This is a 26% increase in inflation-adjusted GST from the pre-pandemic level of Rs 95,000 crore.
Meanwhile, the government has announced a number of measures this fiscal year to curb rising inflation, including cuts in oil excise duty, additional fertilizer and gas subsidies that have resulted in increased spending. However, the fiscal situation is expected to ease from the budget surplus and windfall gains tax and additional tax revenue due to GST. Additionally, higher nominal GDP will provide a cushion, thus the fiscal deficit is likely to come closer to 6.5 percent of GDP (Budget: 6.4 percent of GDP).
However, on the external sector, the trade deficit continued to widen and reached an all-time high of $31 billion in July 2022, mainly due to exports falling to $35 billion from over $40 billion last month. , while imports remained strong at $66 billion.
The $4.8 billion month-on-month gap in the trade deficit in July 2022 is the largest since September 2021 (when the trade deficit widened by $9.7 billion). Overall, India recorded a trade deficit of $100 billion during April-July 2022. If we annualize this trade deficit number, it comes to 8.5 per cent of our GDP for FY23,” SBI Research said.
This is much lower than the peak deficit of 10.7 percent of GDP achieved in FY13. Thus the current situation is much better than in 2012-13. Based on current conditions, SBI has revised down its CAD estimates for FY23 (FY22 CAD: 1.2 percent of GDP) to 3.7 percent of GDP from 3.2 percent of GDP, the report said.
It said, “Going forward, while crude oil has shown signs of softening that will further cool domestic inflation concerns, there will be a counterfactual scenario where inflation accelerates against the exchange rate.” “The dynamics may not be affected as sentiments over the South China Sea may rise. Driving complex global sentiments.”
The report also states that US yields have risen due to defamatory comments by Mary Daly and Charles Evans regarding the Fed’s interest rate hikes along with the spread between the 2-year and 10-year Treasury yields. Confidence has increased about the possibility of A fresh peak on the yield curve metric, a substantial long-term decline in yields, levels not seen since 2000.
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