What do the first quarter figures tell us about the Indian economy?

The central government budget deficit for the first quarter of the April-June period came in at 21.2% of the annual target of 16.6 trillion rupees. This is less than expected due to higher tax collection and lower grant spending.

The deficit for the corresponding period last year was 18.2% of the FY22 budget estimate of Rs 15.07 trillion. The government has said it is sticking to the current fiscal deficit target of 6.4 percent of GDP for FY23.




Driven by the ongoing economic recovery and improved GST compliance, net tax revenue in the first quarter was 5.06 trillion rupees, or 26.1% of the budget estimate, compared to 26. 7% last year.

On the expenditure side, government spending on major subsidies, including food and fertilizers, fell to almost 68,000 crore rupees during the April-June period from around 1 trillion rupees a year earlier.

At 9.48 trillion rupees, total expenditure in the first quarter was 24% of the size of the FY23 budget of 39.4 trillion rupees.

In the first quarter, 23.4% of the capital expenditure target of Rs 7.5 trillion was met. It was 1.75 trillion rupees against 1.11 trillion rupees last year.

Meanwhile, on the economy side, India’s eight core infrastructure sectors saw double-digit growth in the April-June period.

Disaggregated trends in core sector data are mixed, ranging from a moderate growth of 0.6% for crude oil to a solid expansion of 31.2% for coal. Excluding crude, steel and natural gas, imports grew twice as fast, rising 47.4% to $187 billion. single-digit growth.

Retail price inflation averaged 7.3% during the quarter. For each of the three months, it remained above the RBI’s upper tolerance limit of 6%.

The widening current account deficit and the strength of the dollar have weighed on the rupee, which has depreciated 4.4% so far this fiscal year. The current account deficit is estimated at 3% of GDP in FY23, compared to 1.2% in the previous year.

As RBI defended the rupiah against volatility, India’s foreign exchange reserves fell from $606 billion in early April to $571.56 billion last week. India’s merchandise exports in the first quarter jumped 22.2% to a record $116.7 billion.


[Byte of Sunil Sinha, Principal Economist and Director (Public Finance), India Ratings and Research]

The lowest RBI surplus transfer in a decade caused non-tax revenue to halve in the first quarter, translating into a weak 5% increase in revenue in the first quarter.

But going forward, strong tax collections will help the government absorb higher-than-expected subsidy spending and revenue losses due to excise duty cuts.

Experts therefore say that the government will comfortably meet its budget deficit target for FY23.

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