On Track to Achieve Fiscal Deficit Target: Eco Survey

The gradual decline in the Union government's fiscal deficit as a percentage of GDP, in line with the fiscal glide path envisioned by the government, is a result of careful fiscal management supported by buoyant revenue collection over the last two years, stated the Economic survey 2022-23 tabled by the Union Minister for Finance and Corporate Affairs Nirmala Sitharaman in Parliament on January 31. The Survey highlighted that conservative budget assumptions provided a buffer during global uncertainties. The resilience in the fiscal performance was due to a recovery in economic activity and buoyancy in revenues.

Growth in Tax Revenue; GST Collections Up

According to the Survey, the gross tax revenue registered a year-on-year (YoY) growth of 15.5 per cent from April to November 2022, and the Net Tax Revenue to the centre after the assignment to states grew by 7.9 per cent on a YoY basis. "Structural reforms like the introduction of GST and the digitalisation of economic transactions have led to the greater formalisation of the economy and hence expanded the tax net and enhanced tax compliance. Thus revenues have grown at a pace much higher than the growth in GDP," the survey stated.

The Economic Survey also highlighted that direct taxes grew at 26 per cent on a YoY basis due to corporate and personal income tax growth in FY22. It added that growth rates observed in the major direct taxes during the first eight months of FY23 were much higher than their corresponding longer-term averages. The Survey informed that high imports have led to a 12.4 per cent YoY growth in the customs collection from April to November 2022. The excise duty collection has declined by 20.9 per cent from April to November 2022 on a YoY basis.

“The GST Tax payers doubled to 1.4 crore from 70 lakhs in 2022. The gross GST collections were Rs 13.40 lakh crore from April to December 2022. Thus, implying a YoY growth of 24.8 per cent with an average monthly collection of Rs 1.5 lakh crore," it stated. It further highlighted that improvement in GST collections has been due to the nationwide drive against GST evaders and fake bills and systemic changes introduced such as rate rationalisation correcting inverted duty structure.

What does it mean?

According to Mitul Shah, Head of research at Reliance Securities, overall, the Economic Survey outcome is positive for market as upgrade in FY23 GDP growth expectation of 7 per cent augurs well, while FY24 Inflation of below 6 per cent, within RBI’s targeted range provides major relief. "However FY24 GDP growth of 6-6.8 per cent is tad below desired 7 per cent+ range. Preference on growth over fiscal deficit would be key trigger for market sentiment going ahead. Other parameters in terms of GST collection, direct taxes and other revenues are encouraging in this challenging global economic environment," said Shah.

Manish Chowdhury, Head of research at Stoxbox said despite the global headwinds, India is projected to log a growth rate of 6-6.8 per cent in FY24 which would be the fastest amongst the major global economies. "We believe that many structural factors like PLIs, FTAs, alternate technologies/fuels, domestic demand, and healthy balance sheets of consumers, corporates and banks are likely to propel economic growth higher in the long term," said Chowdhury. With inflation off from its peak, the demand side of the story looks intact, further helped by private capex cycle revival along with growing public sector investments, he added. Experts said if India is able to steer through the elevated risks arising from higher inflation and slowing growth in advanced economies, it may usher into a new era of growth which may drive us closer to the $5 trillion GDP in the near term.