India’s budget deficit: Government keeps spending under control to avoid budget slippage

The government will closely monitor its spending to complement the RBI’s measures to contain inflation and manage the external account amid capital outflows, officials told ET. The Treasury will tell departments and departments not to expect any additional funds in the revised revenue expenditure estimates. The government is cautious as fiscal slippage could undermine the RBI’s efforts to manage inflation. “Ministries and departments must adhere to budget estimates,” said a senior government official.

Income Expenses can be reduced

“There is little room for additional supplies,” the official said. “There could be cuts in revenue spending.” There will be no reduction in capital expenditures which are projected at ₹7.5 lakhcrore in the current fiscal year. ET previously reported that the government may not present an additional request for grants in the monsoon season that has just started.

The budget deficit for FY23 is reported at ₹16.6 lakh crore or 6.4% of GDP. The government is facing a surge in food and fertilizer subsidies and has had to reintroduce support for cooking gas to protect consumers.

On the revenue side, it took a hit due to cuts in excise taxes on gasoline and diesel in an effort to curb rising retail fuel prices. The higher spending and lower revenue had raised concerns that the fiscal slippage could fuel inflation and undermine the RBI’s efforts. Consumer inflation has eased to 7% in June from an eight-year high of 7.8% in April, but has stayed outside the RBI’s 2-6% target range for six straight months.

The central bank raised interest rates in rapid succession by a total of 0.9 percentage points in May and June and is widely expected to impose another steep hike at the forthcoming August 2-4 monetary policy review.

Fiscal concerns have eased slightly after the government imposed a “windfall” tax on domestic crude and an export levy on fuel exports, which are expected to fetch about ₹1 lakh crore.

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