The Centre’s tax receipts have slowed considerably in August with gross post-refunds collections for the month coming in at Rs 1.51 trillion, down 8% from the year-ago month, according to official data released on Friday.

In fact, net of devolution to states, the collections in August at Rs 33,882 crore were 71% lower than the year-ago level. The sharper decline in net receipts is due to a doubling of tax transfers to the states in August.

As a result, net (post-devolution) tax revenue growth fell to about 9% on year in April-August, 2022 compared with 26% in April-July, 2022.

Also, tax receipts from corporation tax, personal income tax, excise duty, customs duty and Central GST saw a year-on-year decline in collections in August 2022, as the benefit of the low base effect ended.

The government has also applied brakes on spending in recent months. Total expenditure contracted by 3% on year in August 2022 as revenue expenditure declined by 4% whereas capital expenditure displayed a marginal rise of 1% in the month.

Meanwhile, the Centre’s fiscal deficit touched 32.6% of the annual target in the current financial year till August as against 31.1% recorded a year ago. In actual terms, the fiscal deficit — the difference between expenditure and revenue — was Rs 5.42 trillion during the April-August period of this financial year.

As per the data released by the Controller General of Accounts (CGA), the government’s total receipts, including taxes, stood at Rs 8.48 trillion or 37.2% of the Budget Estimate (BE) for 2022-23. During the year-ago period, the collection was 40.9% of BE 2021-22.

The Centre has released two installments of tax devolution to state governments amounting to Rs 1.17 trillion in August, as against the normal monthly devolution of Rs 58,333 crore, to arrest a decline in their capital expenditure.

“Based on our projection, tax devolution will need to be as high as Rs 9.3 trillion this year, overshooting the budget estimates by more than Rs 1 trillion. Therefore, the amount left to be disbursed to the states in the remainder of the year is quite substantial, warranting a reassessment of the monthly releases in the next quarter,” rating agency Icra chief economist Aditi Nayar said.

While the year-on-year growth in capex still remains high at 47% as against a required rate of 27% to meet annual target, capital spending has averaged at around Rs 50,000 crore per month in the first five months, lower than the required monthly average of Rs 62,500 crore to meet the FY23 BE. There has been a slow pickup in the disbursals under the interest-free capex loan for state governments. Even though the Centre has sanctioned about Rs 40,000 crore out of the total capex loan corpus of Rs 1 trillion in FY23 for states, the disbursals were around Rs 3,000 crore till end-September.

There are several risks to the fiscal deficit target of Rs 16.6 trillion (6.4% of GDP) for FY23, emanating from the need for additional spending on food, fertilizer and LPG subsidies through the year, the revenue loss to the Centre on account of the excise duty cuts etc. “However, a large part of this would be absorbed by higher-than-estimated non-excise taxes, savings on account of lower wheat procurement, as well as the windfall tax on domestic crude oil production and export duties on petroleum products, limiting the extent of the overshoot in the GoI’s fiscal deficit in FY2023 relative to the budget estimates to around Rs 1 trillion,” Nayar said.

However, government officials are optimistic that the fiscal deficit target will be achieved by rationalizing revenue expenditures.