Updated December 22nd, 2023 at 14:25 IST
RBI notes a significant transformation in quarterly trends regarding gross fiscal deficit.
The apex bank highlighted that with the introduction of Goods and Services Tax (GST) in 2017-18, indirect taxes have become more uniformly distributed.
The quarterly trends in gross fiscal deficit (GFD) of the Union government have undergone a notable transformation in recent years. In the last three fiscal years, there has been a reversal in quarterly distribution of GFD, primarily led by a more even distribution of tax and non-tax revenues, the Reserve Bank of India said in its study on Wednesday.
“Prior to 2020-21, GFD in the first quarter itself usually crossed 50 per cent of the full year amount, even touching as high as 74.7 per cent in 2017-18, while the fourth quarter saw a minimal fiscal deficit or even an occasional fiscal surplus, resulting in higher borrowing requirements in the first half of the year,” the study said.
The apex bank highlighted that with the introduction of Goods and Services Tax (GST) in 2017-18, indirect taxes have become more uniformly distributed across the quarters. The share of direct tax has also increased in Q1 which may be attributed to better tax compliance measures enforced by the centre.
“Within non-tax revenue, with the change in accounting year of the Reserve Bank from July-June to April-March with effect from 2021-22, surplus transfer to the Union government is now credited in the month of May instead of August,” it said.
According to the RBI, 2021-22 onwards, the Union government has been receiving a relatively larger share of non-tax revenue in the first quarter of each financial year. At the same time, total expenditure has moved slightly in the opposite direction with more than one-third of the total expenditure incurred in Q4 during 2020-21 to 2022- 23 as against the average of 23.5 per cent during 2014- 20.
Consequently, there has been a sharp reduction in GFD in the first two quarters; GFD in Q4 now accounts for the largest share of the full year GFD “The early influx of tax revenue facilitates more accurate budgeting and forecasting as government agencies can plan their expenditures based on a more reliable estimate of available funds, reducing the risk of budgetary shortfalls,” the study mentioned.
The Union government had budgeted for a GFD of 5.9 per cent of GDP in 2023-24 which is in line with the medium-term GFD target of 4.5 per cent of GDP by 2025-26. During the first half of 2023-2024, GFD of the Union government stood at 39.3 per cent of the BE, marginally higher than the GFD of 37.3 per cent during the corresponding period of the previous year attributable to front-loading of capital expenditure by the Central government. Robust tax collections in Q2 of 2023-2024 contained a fiscal deficit at 14.0 per cent of BE during the period.
Published December 21st, 2023 at 12:01 IST