To compensate for impact of over Rs 1.5 trn on account of measures announced to rein in inflation, including cut in fuel prices and Customs duty exemption: Somanathan
Finance Secretary T V Somanathan
The central government will make every effort to cut revenue expenditure to compensate for the impact of over Rs 1.5 trillion on account of measures announced to rein in inflation, including a cut in fuel prices and Customs duty exemption, Finance Secretary T V Somanathan said on Tuesday.
“We will make every effort to cut revenue expenditure as it is necessary after the excise duty cut and some exemption on Customs duty. We are looking at a total impact of over Rs 1.5 trillion for all of them put together. There will have to be some adjustments made if we have to avoid additional borrowing,” Somanathan told Business Standard.
He said no decision has been taken yet on additional borrowing, but it cannot be completely ruled out. “So we have a choice between the two. We hope to curtail revenue spending to avoid additional borrowing,” he clarified.
The finance secretary said a higher nominal gross domestic product (GDP) than estimated has led to a lower fiscal deficit at 6.7 per cent of GDP rather than the 6.9 per cent projected in the Revised Estimates (RE).
IN FINANCE SECY’S WORDS
- India gross domestic product growth on expected lines
- Fiscal deficit lower due to change in GDP denominator
- Achieving 2022-23 deficit target looks difficult; expect same denominator effect to come into play
- Capital expenditure picked up significantly in 2021-22, indicating increased capacity of project execution
- No decision on additional borrowing, but future action cannot be ruled out entirely
“It’s not the change in the net results of receipts of the expenditure, it’s the change in the ‘GDP denominator’, which had made fiscal deficit 6.7 per cent from 6.9 per cent for FY22,” he said. He also added that the deficit is very close to RE, and in actual terms, it is less than Rs 5,000 crore from RE.
Somanathan expects higher nominal GDP due to high wholesale and retail inflation to provide the necessary cushion for 2022-23 (FY23) fiscal deficit target of 6.4 per cent of GDP, which at this point in time looks difficult to maintain.
Speaking after the official GDP data was released, Somanathan said the GDP numbers are not a surprise and on expected lines. He said that capital expenditure (capex) picked up significantly in 2021-22 (FY22), reflecting an increased capacity to execute projects.
On a marginally lower capex by the government in FY22, the finance secretary said it is quite a good number and a 1 percentage point is not a significant difference, especially when people were sceptical of the government’s ability to come close to the capex target during the February 1 Budget.
The government has budgeted Rs 7.5 trillion capex in FY23, compared with a revised Rs 6.03-trillion capex in FY22.