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Government spending rises at a 12-month high in Sep’22

Achieves ~37% of its FY23 fiscal deficit target in 1HFY23; higher than 35% in 1HFY22

* After contracting for two consecutive months, total government expenditure grew 24.1% YoY in Sep’22 on account of a four-month high growth of 17.5% YoY in revenue spending and a sharp 57.5% YoY rise in capital spending of the government. With this, government’s total expenditure in 1HFY23 grew 12.2% YoY to INR18.2t. This was 46.2% of FY23BE (similar to 46.7% (INR16.3t) of FY22BE achieved in 1HFY22).

* Central government’s capital expenditure grew 49.5% YoY to INR3.4t in 1HFY23, accounting for 45.4% of FY23BE (v/s INR2.3t or 41.4% of FY22BE achieved in 1HFY22).

* Additionally, total receipts of the Center, which had contracted 50% YoY in Aug’22 (due to a sharp contraction in direct taxes) have once again grown by 22.3% YoY in Sep’22. Direct taxes – both corporate/personal income taxes – have registered growth of 19.2%/5.6% YoY in Sep’22 after exhibiting declines of 49.7%/37.6% YoY in Aug’22, respectively. Conversely, indirect taxes continued to grow decently at 14.5% YoY in Sep’22 as against a growth of 12.4% YoY in Aug’22.

* With this, total receipts of the center grew faster at 9.5% YoY in 1HFY23 to INR12t, accounting for 52.7% of FY23BE (lower than 55.6% of FY22BE or INR11t achieved last year).

* Consequently, the government’s fiscal deficit in 1HFY23 stood at INR6.2t. This accounted for 37.3% of its FY23BE v/s 35% of its FY22BE achieved last year during the corresponding months.

* Overall, two headline numbers that brought relief were: a) expenditure, which received some push in Sep’22 and b) direct tax collections, which grew decently in Sep’22 post-severe contractions witnessed in Aug’22. This implied that Aug’22 numbers were just an aberration. However, additional expenditures already announced such as the extension of the PM Garib Kalyan Yojana (PMGKY) until Dec’22, which will cost the government INR448b extra this year, and more which might come in (like the additional allocation in MGNREGA) will put some pressure on government finances. On the other hand, handsome GST collections and good pace of total receipts collection might help the government overcome these additional expenses. Therefore, fiscal position as of now seems on track for FY23E.

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