No plan to change govt's FY23 borrowing target despite revenue hit: Source

No compromise on capex; consolidated fund to be used if needed, the source said

The central government is sticking to its gross borrowing target of Rs 14.31 trillion for the current financial year (FY23) despite revenue hit on account of reduction in excise duty on petroleum products and higher subsidy burden owing to food and fertiliser, a top government source said on Wednesday.

There is no proposal as of now to revise the medium-term inflation target; that the government will pull out money from the Consolidated Fund of India to ensure that its capital expenditure commitments are met; and that the plan to privatise some state-owned banks is very much alive and could happen this year, the source said.

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The person said talks were going on with Russia on trading through the rupee-ruble route, and that the planned rationalisation of goods and services tax (GST) rates might hit some speed bumps due to inflation overhang.

“Currently, we do not see the need to borrow additional sums from the markets. We are sticking to our FY23 borrowing plan,” the source said. When asked whether the FY23 fiscal deficit target of 6.4 per cent of gross domestic product (GDP) would be met, the source said the government would have to find a way to balance the books.

The Centre plans to borrow Rs 8.45 trillion from the bond markets in the first half (April-September) of FY23. This will be around 59 per cent of a lowered full-year gross borrowing target of Rs 14.31 trillion.
 

The revenue foregone due to the recent excise duty cuts on petrol and diesel will be around Rs 85,000 crore in FY23, and all of it will be borne by the Centre as the cut is on road & infrastructure cess. The Centre will bear an additional Rs 1.10 trillion in fertiliser subsidy as commodity prices have spiked due to Russia’s invasion of Ukraine.

Add to this, the government’s decision to extend the PM Garib Kalyan Anna Yojana (PMGKAY) till September, which will increase the food subsidy outlay for FY23 to Rs 2.87 trillion compared to the Budget estimate of Rs 2.07 trillion.

In spite of runaway consumer price index-based inflation (CPI), the source said there was no proposal to tweak the medium-term mandate of 4 (+/-2) per cent given to the Monetary Policy Committee.

Speaking on other issues, the source acknowledged that the current inflationary situation might lead to a delay in the planned rationalisation of GST rates as this could involve hiking the rates of some items.

“Since 2019, the environment has not been conducive for rate rationalisation. In 2020 and 2021, there was the pandemic and now there is the war and its inflationary impact. Even if the group of ministers (headed by Karnataka CM) submits its report on rate rationalisation, the GST Council may not take it up till inflation overhang has eased a little bit,” the source said, and added that the next GST Council meeting would be held soon, before the Monsoon Session of Parliament.

The source said there would be no compromise on various heads even in view of the recent hits on the Centre’s budget. Giving an example, the person said while the revised estimates of road and infrastructure cess collected through duties on petrol and diesel was Rs 2.03 trillion in FY22, the Centre released Rs 2.47 trillion, with the remaining amount coming from the Consolidated Fund of India.

Similarly, though the FY23 BE under the same heading is Rs 1.38 trillion (and it will be even lesser as the Rs 85,000 crore revenue foregone will be under this item), the Centre plans to utilise Rs 2.95 trillion under this cess, with the amount again coming from the Consolidated Fund.

“Under any heading, if there is a shortfall, we will pull money from the Consolidated Fund and ensure there is no compromise on capital and developmental expenditure,” the source said.

On trading options with sanction-hit Russia, the source said there was an older rupee-ruble payment mechanism, which is still active, and some discussions were on with Russia to see if it could be used in the current context.

The person also said that the Centre was still looking to privatise some state-owned banks this year, even though the required legislative changes had not yet been brought in Parliament. The official did not name any possible candidate for such a move.