The Centre as well as state governments are likely to budget for higher market borrowings next fiscal even though the Union Budget may peg a lower-than-expected fiscal deficit at 5.8 per cent of GDP, a report said.
ICRA Ratings anticipated that higher redemptions will lead to gross market borrowings of the Centre and states to rise to Rs 14.8 lakh crore and Rs 24.4 lakh crore, respectively, in FY24 from Rs 14.1 lakh crore and Rs 22.1 lakh crore, respectively, in FY2023.
The agency also said the Centre is expected to peg its FY24 fiscal deficit at 5.8 per cent of the GDP, a healthy moderation from 6.4 per cent of GDP projected for FY23.
According to Aditi Nayar, chief economist at the agency, with a global growth slowdown looming large, Budget 2024 needs to focus on sustaining the domestic growth momentum, while at the same time demonstrating a continued commitment towards fiscal consolidation in addition to limiting the rise in market borrowings.
She also expects the forthcoming budget enhancing the Central capital expenditure to Rs 8.5-9 lakh crore and targeting a lower fiscal deficit of 5.8 per cent of GDP, aided by lower subsidies.
Despite this, higher redemptions will enlarge the Centre's gross market borrowings to Rs 14.8 lakh crore in FY24 from Rs 14.1 lakh crore in FY23.
She said the revenue deficit is expected to fall to Rs 9.5 lakh crore in FY24 from Rs 10.5 lakh crore in FY23, while fiscal deficit may fall only mildly to Rs 17.3 lakh crore from Rs 17.5 lakh crore, respectively, led by higher capex.
Nevertheless, as a proportion of GDP, fiscal deficit is expected to ease to 5.8 per cent from 6.4 per cent.
She said the poll-bound government at Centre is expected to budget for a double-digit growth in capital expenditure at Rs 8.5-9 lakh crore in FY24, up from Rs 7.5 lakh crore in FY23. On the other hand, revenue spending is expected to rise by a relatively muted rate of 3 per cent due to the likely lower food and fertiliser subsidies.
Given the robust direct tax and GST collections, Nayar said, the net tax receipts are expected to overshoot the budgeted amount by a healthy Rs 2.1 lakh crore in FY23.
Direct tax mop-up grew 24.58 per cent to Rs 14.71 lakh crore in this fiscal till January 10, which is more than 86 per cent of the Budget estimate.
This, combined with expenditure savings to the tune of Rs 1 lakh crore, is expected to partly offset the net cash outgoes announced in the first supplementary demand for grants and the shortfall in non-tax revenue and disinvestment receipts of the central government.
As a result, the fiscal deficit to print in at Rs 17.5 lakh crore in FY23, exceeding the budgeted amount of Rs 16.6 lakh crore; but a larger-than-estimated GDP will allow the gap to remain at the budgeted target of 6.4 per cent of GDP, Nayar said.
She said the government is expected to net borrow Rs 10.4 lakh crore in FY24, down from Rs 10.9 lakh crore in FY23. But higher redemptions will have the gross market borrowings to rise to Rs 14.8 lakh crore from Rs 14.1 lakh crore.
On the other hand, states' gross market borrowings, which have been compressed in FY23 for a variety of reasons, is expected to touch Rs 9 lakh crore in the coming fiscal and assuming that 75 per cent of this is funded by the debt, their net borrowings will touch Rs 6.8 lakh crore.
Nayar said the gross tax revenue in FY24 is estimated at Rs 34 lakh crore, a 9.4 per cent expansion over projected level for FY23, with growth in direct taxes likely to outpace that of indirect taxes which is likely to be roiled by poor customs duty collections and reversion of excise duty on auto fuels to pre-pandemic levels.
The share of interest payments in total expenditure will remain elevated at 24-25 per cent, owing to an increase in the debt outstanding, underscoring the need to limit borrowings, going ahead, Nayar said.