Government revenues were buoyant last year, will likely remain so this year, providing fiscal headroom.

At the aggregate level, the Centre’s gross tax collections stood at Rs 27.08 lakh crore in 2021-22, almost Rs 2 lakh crore higher than the revised estimates, which were themselves higher than the earlier budget estimates. The healthier than expected tax revenue was driven by robust direct and indirect tax collections. Direct tax collections stood at Rs 13.85 lakh crore, around Rs 1.35 lakh crore higher than the revised estimates (with both corporate and income tax collections growing at a heartening pace), while indirect tax collections were higher by around Rs 57,000 crore. A similar increase was also observed in non-tax revenues driven, in part, by higher dividends from PSUs. The latest data also indicates that the central government has considerable fiscal headroom in the coming financial year. The Union budget for 2022-23 had pegged the Centre’s gross tax revenues at Rs 27.57 lakh crore — this is now only 1.8 per cent higher than its gross tax revenues in 2021-22. Considering that the recent Economic Survey had pegged the economy to grow at 8-8.5 per cent in 2022-23 — even though this forecast was made before the Russia-Ukraine conflict, and growth is now expected to be lower — as nominal growth is likely to remain high, actual tax collections may well come in significantly higher than budgeted targets.

At the same time, there are several headwinds. On the revenue side, the recent cuts in excise duties, and the lower than expected transfer from the central bank are likely to act as a drag on receipts. On the expenditure side, spending on food, fertiliser and LPG subsidies will weigh heavily on the exchequer. And though the higher than expected revenues, aided by higher than previously anticipated nominal GDP growth, will help offset some of this, the pressure on the fisc is likely to remain.