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% of gross domestic product. Total expenditure for the 2022/23 fiscal year that started on April 1 could come in ?70k crore to ?80k 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% and 5%, having shot up to a record of 9.3% 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 cuts as discussions over revised budget estimates were ongoing and a final call would be taken by the end of December.