Budget 2022 is in and as always the devil lies in the data. So here's a first read on budget numbers, the ones you should focus on and how credible they are.
Big Number 1: General Government Fiscal Deficit
The way to look at the fiscal situation this year is to focus on the general government fiscal deficit. This is because in the budget of 2022, not only has the central government targeted modest consolidation of its fiscal deficit to 6.4%, but also allowed states to run a fiscal deficit of up to 4%—which is higher than the Finance Commission mandate of 3%. The central government will also allocate Rs 1 lakh crore as 50-year interest free loans over and above normal borrowings.
The reason we are specially focused on the general government deficit this year is because states contribute two-thirds of capex and we need them to keep spending.
Net-net, we are looking at a general government deficit of 10.4% in FY23, compared to about 10.9% for FY22 (assuming states run a fiscal deficit of close to 4% this year). So, government spending support to the economy stays.
Big Number 2: Borrowing Binge
The flip side of the government allowing itself to run wider-than-expected deficits is the deluge of government borrowings.
Gross borrowings for the year from the centre alone are at Rs 14.95 lakh crore. Net borrowings at Rs 11.09 lakh crore. State borrowings will add to that.
No surprise then that bond markets sold off ferociously. Yields rose close to 20 basis points! Just look at a longer-term chart of gross borrowings folks—they have doubled in three financial years with no new source of demand added.
It's going to be a tough year for the rates market and for the Reserve Bank of India, which has fewer options to support these borrowings.
Incidentally, the government's reliance on borrowing from small savings remains high. In FY22, the government borrowed Rs 5.91 lakh crore from small savings and in the new fiscal it intends to borrow Rs 4.25 lakh crore.
Big Number 3: Capex Vs Total Expenditure
The market wanted the government to focus on capital expenditure and the government seemed to deliver when Finance Minister Nirmala Sitharaman said capex for the year is pegged at Rs 7.5 lakh crore.
There are a few caveats here though.
First, the revised estimate of capex for FY22 of Rs 6.02 lakh crore includes Rs 51,971 crore towards settlement of Air India dues. So the revised estimate of capex should actually be Rs 5.5 lakh crore in line with the budget estimate.
For FY23, the spending on the capital account is pegged at Rs 7.5 lakh crore.
Second, the grants in aid for capital assets, which is being added into the spending on the capital account to get to the "effective capital expenditure of Rs 10.7 lakh crore, includes MGNREGA spend of Rs 73,000 crore, as per notes in the 'Budget At A Glance Document'.
If you look at total expenditure, the increase there is much more modest at 4.6%, which means revenue expenditure is flat for the year.
Big Number 4: Squeezing Subsidies And MGNREGA Spends
The squeeze in revenue expenditure you see above is coming on account of lower subsidies and modest budgeting for spending on the rural jobs guarantee scheme. Neither is good from the viewpoint of supporting the most vulnerable in society.
Food subsidy is down 28% to Rs 2.08 lakh crore, suggesting that the expanded food transfers may not continue beyond March.
Fertiliser subsidy is down to Rs 1.05 lakh crore compared with Rs 1.4 lakh crore.
MGNREGA allocation at Rs 73,000 crore is lower than the revised amount of Rs 98,000 spent last year on the hopes that the employment markets will strengthen.
Big Number 5: Nominal GDP And Tax Revenue Projections
On the revenue side, there are two numbers to focus on.
First, the nominal GDP growth for FY23 is projected at a very conservative 11.1%. The Economic Survey spoke of 8-8.5%. Even on the expectation that inflation stays between 4% and 4.5%, nominal GDP growth could have been pegged between 12% and 13%.
Atop that 11.1% nominal GDP growth, the government is budgeting for just 9.6% increase in gross tax revenue. Revenue secretary Tarun Bajaj explained that if you adjust for lower excise duties, which were reduced this year, the estimated rise in tax revenue is about 14%.
Estimated non-tax revenue of Rs 2.7 lakh crore next year versus Rs 3.1 lakh crore revised estimate for this year reflects both lower divestment receipts and a smaller surplus transfer from the RBI perhaps.
Watch a conversation on the budget math with Ananth Narayan of SP Jain Institute of Management and Research and Kaushik Das of Deutsche Bank below:
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