The key to the seeming paradox lies in the assumptions about revenue expenditure. In contrast to capital expenditure, it is assumed to remain almost unchanged, rising by under one per cent from Rs 31.7 lakh crore to Rs 31.9 lakh crore.
The combination means that overall expenditure is slated to rise by under 5% from Rs 37.7 lakh crore to Rs 39.4 lakh crore.
The relatively modest increase in overall expenditure means that the fiscal deficit can be contained at Rs 16.6 lakh crore or 6.8% of the GDP. Interestingly, while the Economic Survey presented on Monday pegged growth in 2022-2023 at about 8-8.5%, the Budget assumes nominal growth of 11.1%. While it does not specify how this breaks up into real growth and inflation, it is unlikely that the assumed inflation would be as low as 3%.
The deficit is not projected to get out of control despite divestment receipts being projected to actually come down from Rs 78,000 crore in the revised estimate for the current year to Rs 65,500 crore.
Tax revenues too are slated to go up by under 10% from Rs 17.7 lakh crore to Rs 19.3 lakh crore. That is because more substantial increases in revenues from corporation and income tax as well as GST and customs duties-all growing between 12% and 16%-are estimated to be partly offset by a decline in collection of union excise duties, presumably because of the petroleum sector.
The real question then is whether the assumption of near-stagnant revenue expenditure is unduly optimistic. A closer look at the break-up of that number shows that the Budget assumes the subsidy bill will come down substantially next year. Food subsidy is projected to fall from roughly Rs 2.9 lakh crore to Rs 2.1 lakh crore. Similarly, the fertiliser subsidy is to drop from Rs 1.4 lakh crore to Rs 1.1 lakh crore.
If the assumption about more or less static revenue expenditure proves to be unreal, the government could be forced to either cut back on capital expenditure to keep the overall spending in check or to let the deficit go beyond what’s projected, neither of which is a pleasant option.
A large chunk of the huge hike in capital expenditure is also in the form of higher transfers to states for such spending. Against under Rs 21,000 crore on this head in the RE for the current year, the BE for 2022-23 has over Rs 1.1 lakh crore. This also means that whether or not this actually translates into expenditure on asset creation will depend on the ability of states to absorb this funding and use it for the intended purpose. The capacity to do so varies considerably across states and could be a dampener.