Spending by the Indian government this fiscal year could be less than budgeted for the first time in three years, two sources with direct knowledge of the matter told Reuters, amid a push to meet a fiscal deficit target of 6.4 per cent of the gross domestic product.

Total expenditure for the 2022-23 fiscal year that started on April 1 could come in Rs 70,000 crore to Rs 80,000 crore below the budgeted Rs 39.45 lakh crore, the sources said, requesting anonymity. The government is keen to rein in the fiscal deficit as it is well above the historical levels of between 4 per cent and 5 per cent, having shot up to a record of 9.3 per cent during the first year of the Covid-19 pandemic in 2020/21.

Though tax cuts on fuel, aimed at reducing the impact of soaring global energy prices, could reduce revenues by more than Rs 1 lakh crore, one of the sources said total revenues were still expected to increase by over Rs 1.5 lakh crore to Rs 2 lakh crore this year.

The rise in revenues would still not be enough to cover anticipated additional expenses with, for example, the government potentially having to provide additional food and fertiliser subsidies of Rs 1.5 lakh crore to Rs 1.8 lakh crore, according to the sources. Despite those pressures, the government remains intent on achieving its deficit target, according to one of the sources.

“The government is not going to budge from the fiscal deficit target,” the source said, noting that an “expenditure rationalisation” would be required. The sources did not say which sectors were likely to be affected by expenditure cut.

Green bond use in 9 areas

The proposed sovereign green bonds will be used to fund public sector projects in nine areas including renewable energy, clean transportation, water and waste management projects, according to the framework for such bonds announced by the finance ministry.

The government aims to mobilise Rs 16,000 crore through the issue of green bonds in the current fiscal ending March 2023. The proceeds will be deposited in the Consolidated Fund of India (CFI). Funds from the CFI will be made available for the projects The proceeds will fund projects that occurred a maximum of 12 months prior to the issue of the bonds. The funds must be allocated within 24 months of the issue of the bonds, according to the framework.

“It has been estimated that India will need green funds to the extent of $170 bn every year. Even if the government is expected to fund 20 per cent of such requirements through, this will amount to issue of $34bn (Rs 2.72 lakh crore) on an annualised basis,” Suman Chowdhury, chief analytical officer, Acuité Ratings & Research said. “Given the limited size of the issuance for this fiscal at Rs 16,000 crore, we, however, don’t foresee any challenges in the mobilisation.” (Our Special Correspondent)