The Big Recalculation – FY23 fiscal deficit seen at 6.9% after excise duty cuts, lower RBI surplus

The Centre has set itself a fiscal deficit target of 6.4 percent of GDP for FY23. Less than two months into the new financial year, the government's fiscal math is in tatters and warrants a recalculation.

If the Indian public has been bearing the brunt of high inflation, it is now the government's turn to pay to control it.

In a series of tweets on May 21, Finance Minister Nirmala Sitharaman announced a slew of measures to reduce price pressure for consumers, the most eye-catching of them being a reduction in the excise duty on petrol and diesel by Rs 8 per litre and Rs 6 per litre, respectively, a move that will see the Centre forgo a tad less than Rs 1 lakh crore in revenue this financial year.

There were other announcements on May 21 with considerable fiscal implications: an additional fertiliser subsidy of Rs 1.10 lakh crore, a gas cylinder subsidy worth Rs 6,100 crore, and reductions in customs duty on certain inputs.

These hits to the Centre's revenue come close on the heels of the Reserve Bank of India's (RBI) board on May 20 approving the transfer of Rs 30,307 crore as dividend to the government for FY22, likely less than half of what the government had budgeted.

As per the 2022 budget, the government had expected to receive Rs 73,948 crore as dividend from the central bank and state-run lenders this year. The dividend from the RBI would have formed almost all of it, having been responsible for 98 percent of the dividend in FY22.

FY23 FISCAL MATH UPENDED?
A: RECEIPTS
	Estimated revenue loss (in Rs crore)
Union excise	83,000 (pro rata for 10 months)
RBI, PSU bank dividend	43,641 (assuming zero PSU bank dividend)
Disinvestment	41,000
B: EXPENDITURE
	Estimated extra spending (in Rs crore)
Fertiliser subsidy	1,10,000
Garib Kalyan Anna Yojana	80,000
Gas cylinder subsidy	6,100

Unexpected fiscal costs had begun to pile up as early as late March after the free foodgrain scheme, Pradhan Mantri Garib Kalyan Anna Yojana, was extended by another six months to September.

New Delhi, which has deftly managed the widening exchequer since the coronavirus pandemic ballooned its budget gap, will likely rely on the resilience of the economic recovery to manage its finances. In an interview to CNBC-TV18 on May 23, RBI governor Shaktikanta Das said his discussions with the government left him with the feeling the fiscal deficit target would be met. How the government would do so, Das said it was not for him to answer.