IGI Logo

Conservative receipts' estimates have led to higher-than-expected fiscal deficit target in the Union Budget FY23, said Motilal Oswal Financial Services.

The Union budget has estimated a total expenditure of about Rs 39.45 lakh crore, whereas, total receipts other than borrowings have been targeted at Rs 22.84 lakh crore.

On Tuesday, Finance Minister Nirmala Sitharaman said that the Centre will be able to achieve realistic assessments of FY23 fiscal numbers or "even better them".

Sitharaman cited that the Centre has been proven right on the FY22 fiscal assessments.

As per MOFSL, the government continued on its course to improve the quality of its expenditure by focusing on investment growth.

"However, the higher-than-expected fiscal deficit, and thus, borrowings, disappointed the bond market and pushed the benchmark bond yield to over 6.8 per cent."

For the second consecutive year, the government appears to have underestimated its revenue growth in 'FY22RE' and 'FY23BE'.

According to MOFSL, "based on provisional data available up to December 2021 and the historical trends, our calculations suggest that revenue receipts could exceed the revised estimates by as much as Rs 1.7 trillion in FY22E and further by Rs 2 trillion in FY23E."

"However, what is perplexing is to note that the government expects Rs 660 billion from disinvestments in Feb-Mar 2022 that may be difficult without the public issuance of Life Insurance Corporation (LIC)."

"We believe LIC and other disinvestments could happen in FY23, implying that while there would be a shortfall in FY22 (v/s FY22REs), there is a possibility of over-achievement in FY23. Overall, while there could be an overshoot of Rs 1.2 trillion in FY22, total receipts could exceed the targets by Rs 2-2.5 trillion in FY23E."

In addition, the brokerage house said that the move will lead to higher-than-expected fiscal deficit and market borrowings.

"Such conservative receipt estimates are the primary reason for higher-than-expected fiscal deficit and, thus, borrowings in FY22/FY23, which spooked the debt markets."

"Notwithstanding better nominal GDP growth, the fiscal deficit is revised upwards to 6.9 per cent of GDP in 'FY22RE' and pegged at 6.4 per cent of GDP for 'FY23BE'."