As the Lok Sabha elections draw near, the government is gearing up for increased spending in the 2023-24 financial year. This election-year spending primarily focuses on subsidies, welfare schemes, and extending essential programs. Despite these additional expenses, the government remains committed to meeting the fiscal deficit target for 2023-24.
Limited Impact on Fiscal Deficit
Government officials believe that the impact on the fiscal deficit will be minimal. The increase in subsidies will only be for three months, and the slower expenditure in the first half of the financial year will offset these additions. Furthermore, the extension of the free food grain scheme, which will cost an additional Rs 15,000 crore due to a three-month extension, is not expected to significantly affect fiscal year 2024.
Additional expenditures include providing LPG cylinders at Rs 300 to beneficiaries of the Pradhan Mantri Ujjwala Yojana, with an added cost of Rs 3,840 crore. On the other hand, selling wheat flour at a subsidized rate of Rs 27.50 per kg under the Bharat Atta Yojana is not expected to impact government expenses. Additionally, the upcoming Urban Housing Subsidy Scheme will introduce an extra cost of Rs 3,000 crore over three months in the financial year 2024, with a total expenditure of Rs 60,000 crore over five years.
Provision in the Budget
The budget allocated Rs 1.97 lakh crore for food subsidies and Rs 1.75 lakh crore for fertilizer subsidies. In the financial year 2023-24, Rs 60,000 crore was designated for MNREGA, compared to the previous year’s expenditure of Rs 89,400 crore.
Covering Additional Expenses
Tax collection profits are expected to help cover the added expenses in the 2023-24 financial year. In September, the government’s net tax revenue increased by 14.3 percent on an annual basis, providing the necessary funds for these expenditures. The government maintains a substantial cash reserve and intends to meet its fiscal deficit target for the year without causing market shocks.
Although the government has ample cash reserves, it plans to continue borrowing from the bond market to maintain financial stability. Meeting the fiscal deficit target remains a top priority. In the current financial year’s second half, the government intends to borrow Rs 6.55 lakh crore through the sale of dated securities, including green bonds worth Rs 20,000 crore.
The government aims to raise Rs 15.43 lakh crore through bond sales in the financial year 2023-24, with Rs 8.88 lakh crore targeted for the first half of the year. This will be achieved through a combination of borrowing from the bond market, income from small savings, and withdrawals from the cash balance.