The Centre’s fiscal deficit at the end of the first seven months of financial year 2024-25 touched 46.5% of the full-year target, government data showed on Friday (November 29, 2024).

In absolute terms, the fiscal deficit — the gap between Government’s expenditure and revenue — was at ₹7,50,824 crore during April-October period, according to data released by the Controller General of Accounts (CGA).

The deficit stood at 45% of the Budget Estimates (BE) in the corresponding period of 2023-24.

In the Union Budget, the government projected to bring down the fiscal deficit to 4.9% of gross domestic product (GDP) in the current 2024-25 financial year. The deficit was 5.6% of the GDP in 2023-24.

In absolute terms, the Government aims to contain the fiscal deficit at ₹16,13,312 crore during the current fiscal.

The revenue-expenditure data of the Union Government for the first seven months of 2024-25 showed that the net tax revenue was about ₹13 lakh crore or 50.5 per cent of budget estimate for the current fiscal.

The net tax revenue collection was 55.9% at September-end of 2023.

The central Government’s total expenditure in the seven months through October stood at ₹24.7 lakh crore or 51.3% of budget estimate. Expenditure was 53.2% of budget estimate in the year-ago period.

Of the total expenditure, ₹20 lakh crore was in the revenue account and ₹4.66 lakh crore in the capital account.

Fiscal deficit is the difference between the total expenditure and revenue of the Government. It is an indication of the total borrowing that is needed by the Government.

Image used for representative purpose only
| Photo Credit: istock.com/Getty Images

The Centre’s fiscal deficit at the end of the first five months of the current fiscal touched 27% of the full-year target, government data showed on Monday (September 30, 2024).

In absolute terms, the fiscal deficit – the gap between expenditure and revenue – was at ₹4,35,176 crore as of August-end, according to data released by the Controller General of Accounts (CGA).

The deficit stood at 36% of the Budget Estimates (BE) in the corresponding period of 2023-24.

In the Union Budget, the government projected to bring down the fiscal deficit to 4.9% of the gross domestic product (GDP) in the current 2024-25 financial year. The deficit was 5.6% of the GDP in 2023-24.

In absolute terms, the government aims to contain the fiscal deficit at ₹16,13,312 crore during the current fiscal.

Unveiling the revenue-expenditure data of the Union government for the first five months of 2024-25, CGA said the net tax revenue was ₹8.7 lakh crore or 33.8% of the BE for the current fiscal.

The net tax revenue collection was 34.5% at July-end 2023.

The central government’s total expenditure in the four months through August stood at ₹16.5 lakh crore or 34.3% of BE. The expenditure was 37.1% of the BE in the year-ago period.

Of the total expenditure, ₹13,51,367 crore was in the revenue account and ₹3,00,987 crore was in the capital account.

Out of the total revenue expenditure, ₹4,00,160 crore was towards interest payments.

Fiscal deficit is the difference between the total expenditure and revenue of the government. It is an indication of the total borrowing that is needed by the government.

India’s Finance Minister Nirmala Sitharaman holds up a folder with the Government of India’s logo as she leaves her office to present the federal budget in the parliament, before the nation’s general election, in New Delhi, India, February 1, 2024.
| Photo Credit: REUTERS

The government under Prime Minister Narendra Modi should focus on adherence to fiscal prudence and continue on the fiscal consolidation path, suggested SBI Research ahead of the much-awaited full Budget for 2024-25 to be tabled on July 23 – the first Budget under Modi 3.0.

What is fiscal deficit?

The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings that may be needed by the government.

SBI Research suggested that the Centre should target a fiscal deficit of 4.9%, but it must not obsess too much over the fiscal stance. The Government intends to bring the fiscal deficit below 4.5% of GDP by the financial year 2025-26.

In the Interim Budget earlier this year, the Government has targeted a fiscal deficit of 5.1% of GDP for 2024-25. However, SBI Research believes that the Government may budget a fiscal deficit of less than “5% — may be 4.9% — for 2024-25” due to stellar growth in GST revenues and higher dividends from PSUs and RBI.

State borrowings

As the budgeted fiscal deficit gets lowered, the gross market borrowing of the government will also reduce to around ₹13.5 lakh crore in FY25 compared to ₹14.1 lakh crore in the interim budget and net market borrowing to ₹11.1 lakh crore against ₹11.8 lakh crore earlier, the report, authored and led by Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, said. “This along with India’s inclusion in Global Bond indices will keep the yield curve movements anchored,” it added.

In 2023-24, the Government pegged the fiscal deficit target for FY2023-24 at 5.9% of gross domestic product (GDP). Later, it was downwardly revised to 5.8%.

The interim budget, tabled on February 1, took care of the financial needs of the intervening period until a government was formed after the Lok Sabha polls, after which a full budget was supposed to be presented by the new government in July.

FM Sitharaman to break record with sixth budget presentation

With this upcoming Budget Presentation,surpassed the record set by former Prime Minister Morarji Desai, who as finance minister, presented five annual budgets and one interim budget between 1959 and 1964.

Mrs. Sitharaman’s upcoming Budget speech would be her sixth.The government on July 6 announced the dates of the Budget session of Parliament which will start on July 22 and conclude on August 12.

The Central government’s fiscal deficit during 2023-24 at 5.6% of the GDP was better than previous estimates of 5.8% on account of higher revenue realisation and lower expenditure, according to official data released on Friday.

In actual terms, the fiscal deficit — or gap between expenditure and revenue — was ₹16.53 lakh crore, or 5.63% of the GDP, which grew 8.2% in 2023-24.

In the revised estimate for 2023-24, the government had in the interim Budget presented in Parliament on February 1 projected the fiscal deficit of ₹17.34 lakh crore, or 5.8% of the gross domestic product (GDP).

According to the data released by the Controller General of India (CGA), the government’s revenue collection was 101.2% of the revised estimates (RE) presented in the Budget.

Net tax collection was ₹23.26 lakh crore in the financial year ending March 2024.

The expenditure worked out to be ₹44.42 lakh crore. The expenditure during the last fiscal was 98.9% of the RE.

CGA data also showed that revenue deficit during FY24 was 2.6% of the GDP and effective revenue deficit was 1.6% of the GDP.

Commenting on the data, ICRA Chief Economist Aditi Nayar said the government’s fiscal deficit was contained below the RE for FY24, benefiting from higher-than-anticipated receipts and lower than estimated revenue spending, with only a marginal miss in capital expenditure.

Vivek Jalan, Partner at Tax Connect Advisory Services LLP, a multi-disciplinary consulting firm, said lower fiscal deficit is majorly due to the uptick in tax revenues.

“The encouraging fiscal deficit numbers can be dedicated to the taxpayers of the country. The efficiency of the CBDT and CBIC and especially the ground covered in implementation of Artificial intelligence in unearthing fake transactions have also to be appreciated by honest taxpayers,” he said.

For the current financial year (2024-25), the government estimates the fiscal deficit at 5.1% of the GDP, or ₹16,85,494 crore.

As per the Fiscal Responsibility & Budget Management (FRBM) Act, the government plans to achieve a fiscal deficit of 4.5% in 2025-26.

During 2023-24, the government received ₹27,88,872 crore (101.2% of corresponding RE of total receipts) comprising ₹23,26,524 crore tax revenue (net to Centre), ₹4,01,888 crore of non-tax revenue and ₹60,460 crore of non-debt capital receipts.

According to CGA data, ₹11,29,494 crore was transferred to State governments as devolution of share of taxes by the Government of India, an increase of ₹1,81,088 crore year-on-year.

Total expenditure incurred by the central government was ₹44,42,542 crore (98.9% of corresponding RE of 2023-24), of which ₹34,94,036 crore was on revenue account and ₹9,48,506 crore on capital account.

Of the total revenue expenditure, ₹10,63,871 crore was towards interest payments and ₹4,13,542 crore on account of major subsidies.

Meanwhile, according to another CGA data, the fiscal deficit in April was 12.5% of the Budget Estimate (BE) for 2024-25, or ₹2.1 lakh crore. It was 7.5% of BE 2023-24 in April 2023.

Ms. Nayar said while the fiscal deficit for April 2024 has spiked on account of an unexpected surge in revenue spending, in spite of healthy tax revenues, the higher-than-budgeted dividend from the Reserve Bank of India (RBI) is likely to dampen the fiscal deficit in the rest of this quarter.

Overall, the fiscal dynamics appear favourable for FY25, amid continued resilience in GST collections and an unexpectedly large dividend payout by the RBI, she added.

Illustration: Soumyadip Sinha

Finance Minister Nirmala Sitharaman, presenting her sixth Union Budget and her first Interim Budget, resisted the temptation to hand out dramatic pre-poll sops like the ones unveiled ahead of the 2019 Lok Sabha election, opting instead to bank on the government’s track record and the promise of “unprecedented development” in the next five years.

While broadly sticking to her assurance that this 2024-25 Budget would be a ‘vote on account’, without “spectacular announcements”, Ms. Sitharaman painted an elaborate picture of India’s imperfect past prior to 2014, with the economy and governance needing serious mending. She then outlined how the NDA government, with a ‘nation-first’ approach, had enabled the transition to a virtually perfect present.

Painting a rosy picture

“It is now appropriate to look at where we were then till 2014 and where we are now, only for the purpose of drawing lessons from the mismanagement of those years,” Ms. Sitharaman said, promising a white paper in the House on the mess allegedly inherited by the Narendra Modi-led government and the economy’s subsequent resurgence to a path of sustainable, high growth.

Analysis | Nirmala Sitharaman’s interim Budget reveals BJP’s confidence in comeback

“People are living better and earning better, with even greater aspirations for the future. Average real income of the people has increased by 50%. Inflation is moderate,” she underlined.

New housing scheme

Though there were no tax breaks, some immediate promises were made, including a scheme to enable the “deserving” urban middle class to buy or build their own homes, two crore more rural houses to be built in the next five years, and 300 units of free power a month for one crore households through rooftop solar solutions, as mooted by Prime Minister Narendra Modi after the Ram Mandir’s consecration last month.

Finance Secretary T.V. Somanathan said the contours for the new housing scheme — which does not directly refer to urban households, but hints at them by picking beneficiaries from chawls, slums or unauthorised colonies — will be finalised before funding the plan.

Apart from a few such feel-good promises, the Finance Minister committed to work with States and stakeholders to implement “next generation reforms” in its next tenure. At the full Budget in July, the government plans to present a detailed roadmap for its vision of a developed India by 2047, she said, enunciating some guiding principles that will drive its approach.

Poll signals

Ms. Sitharaman also made it a point to emphasise that the government is committed to turning the eastern parts of India — Bihar, Jharkhand, West Bengal, Odisha, and Chhatisgarh — into the growth engines of the economy in the coming Amrit Kaal, a term used for the period leading up to 2047. Another plausible poll signal was the constitution of a high-powered panel to consider the challenges arising from “fast population growth and demographic changes”, although she parried queries on the intent of this move in her post-Budget press conference.

Terming ‘social justice’ an effective and necessary governance paradigm, the Minister argued that what was mostly a political slogan in the past has been achieved by this government, through a “saturation approach of covering all eligible people” to address systemic inequalities in society. “This is secularism in action, reduces corruption, and prevents nepotism,” she asserted, adding that the four major castes identified by the PM – the poor, women, youth and farmers — would receive primacy in policy.

There were no philosophers or poets quoted in her speech, which was about 25% shorter than the President’s Wednesday address that had also embellished the government’s achievements. Instead, Ms. Sitharaman invoked the PM’s speeches and beliefs about half a dozen times before she wrapped up.

Stringent fiscal discipline

While some hopes — for measures to spur consumption and rural demand against the backdrop of a poor monsoon, and to prod private investments — were dashed, Ms. Sitharaman’s fiscal discipline surprised most economists, who had expected this year’s fiscal deficit target (5.9% of GDP) to be breached. The FM not only revised the deficit estimate for this year to 5.8% of GDP, but also committed to hit the 5.1% mark in 2024-25, with a firm eye on bringing the fiscal gap to or below 4.5% of GDP in 2025-26.

Capital expenditure plans for the coming year got a modest but assured 11.1% increase, rising to an ostensbily auspicious number of ₹11,11,111 crore, and interest-free capex loans to States were raised to ₹1.3 lakh crore. Yet, gross and net borrowings planned in 2024-25 have been lowered from this year’s levels to ₹14.13 lakh crore and ₹11.75 lakh crore, respectively.

Interim Budget 2024 | Govt to come out with White Paper on mismanagement of economy prior to 2014, says Sitharaman

“Now that the private investments are happening at scale, the lower borrowings by the Central government will facilitate larger availability of credit for the private sector,” Ms. Sitharaman hoped, marking a prudent return to the tradition of keeping Interim Budgets low on profligacy and high on intent.

New Delhi:

The central government’s fiscal deficit touched 39.3 per cent of the full-year target in the first half of the current financial year, slightly higher than 37.3 per cent recorded in the year-ago period.

In actual terms, the fiscal deficit, or the gap between expenditure and revenue, worked out at Rs 7.02 lakh crore at the end of September, as per data released by the Controller General of Accounts (CGA).

In the Union Budget, the government projected to bring down the fiscal deficit to 5.9 per cent of the Gross Domestic Product (GDP) in the 2023-24 financial year.

The fiscal deficit was 6.4 per cent of the GDP in 2022-23, against the earlier estimate of 6.71 per cent.

The tax revenue was at Rs 11.60 lakh crore or 49.8 per cent of the annual target. During April-September 2022-23, the net tax collection was 52.3 per cent of that year’s annual Budget Estimate (BE).

The Centre’s total expenditure was Rs 21.19 lakh crore, or 47.1 per cent of BE for 2023-24, marginally higher than 46.2 per cent of BE for 2022-23.

The Government of India has transferred Rs 4,55,444 crore to state governments as devolution of share of taxes till September, which is Rs 79,338 crore higher than the previous year.

Of the total revenue expenditure, Rs 4.84 lakh crore was on account of interest payments and Rs 2.06 lakh crore towards major subsidies.

Commenting on the CGA data, ICRA Chief Economist Aditi Nayar said higher than budgeted dividend surplus transfer of Rs 8,742 crore from the RBI is likely to provide some cushion to meet any undershooting in other revenue streams, including disinvestment or potential overshooting in expenses, relative to respective BE, such as MGNREGA and LPG subsidy.

Central government’s fiscal deficit touched 39.3% of the full year target in the first half of the current financial year, slightly higher than 37.3% recorded in the year-ago period.

In actual terms, the fiscal deficit or the gap between expenditure and revenue worked out at ₹7.02 lakh crore at the end of September 2023, showed data released by the Controller General of Accounts (CGA).

In the Union Budget, the government projected to bring down the fiscal deficit to 5.9% of the gross domestic product (GDP) in the current 2023-24 financial year.

The fiscal deficit was 6.4% of the GDP in 2022-23 against the earlier estimate of 6.71%.

The tax revenue was at ₹11.60 lakh crore or 49.8% of the annual target. During April-September 2022-23, the net tax collection was 52.3% of that year’s annual Budget Estimate (BE).

Centre’s total expenditure was ₹21.19 lakh crore or 47.1% of BE of 2023-24, marginally higher than 46.2% of BE 2022-23.

Central government’s fiscal deficit touched 39.3% of the full year target in the first half of the current financial year, slightly higher than 37.3% recorded in the year-ago period.

In actual terms, the fiscal deficit or the gap between expenditure and revenue worked out at ₹7.02 lakh crore at the end of September 2023, showed data released by the Controller General of Accounts (CGA).

In the Union Budget, the government projected to bring down the fiscal deficit to 5.9% of the gross domestic product (GDP) in the current 2023-24 financial year.

The fiscal deficit was 6.4% of the GDP in 2022-23 against the earlier estimate of 6.71%.

The tax revenue was at ₹11.60 lakh crore or 49.8% of the annual target. During April-September 2022-23, the net tax collection was 52.3% of that year’s annual Budget Estimate (BE).

Centre’s total expenditure was ₹21.19 lakh crore or 47.1% of BE of 2023-24, marginally higher than 46.2% of BE 2022-23.

Union Finance Minister Nirmala Sitharaman with Minister of State for Finance Pankaj Chaudhary addresses a press conference in Mumbai on February 4, 2023.
| Photo Credit: PTI

The story so far: In the Union Budget for 2023-24, Finance Minister Nirmala Sitharaman chose the path of relative fiscal prudence and projected a decline in fiscal deficit to 5.9% of gross domestic product (GDP) in FY24, compared with 6.4% in FY23. Ms. Sitharaman said the government planned to continue on the path of fiscal consolidation and reach a fiscal deficit below 4.5% by 2025-26. To finance the fiscal deficit in 2023-24, she said the net market borrowings from dated securities are estimated at ₹11.8 lakh crore, and that the balance financing is expected to come from small savings and other sources. The gross market borrowings are estimated at ₹15.4 lakh crore.

What is the direction on fiscal deficit given in the Budget?

In Union Budget 2023-24, the fiscal deficit to GDP is pegged at 5.9% in FY24. This ratio has declined from 6.4% in 2022-23 (revised estimate) and 6.7% in 2021-22 (actual).

In the revenue budget, the deficit was 4.1% of GDP in 2022-23 (revised estimate). In Union Budget 2023-24, revenue deficit is 2.9% of GDP. If interest payments are deducted from fiscal deficit, which is referred to as primary deficit, it stood at 3% of GDP in 2022-23 (RE).

The primary deficit, which reflects the current fiscal stance devoid of past interest payment liabilities, is pegged at 2.3% of GDP in Union Budget 2023-24.

Are allocations lower for some sectors?

The major allocations that have been pared down are food, fertilizer and petroleum subsidies. The food subsidy in 2022-23 (RE) was ₹2,87,194 crore. In 2023-24, it has been reduced to ₹1,97,350 crore. Similarly, the fertilizer subsidy in 2022-23 was ₹2,25,220 crore (RE); it has been reduced to ₹1,75,100 crore for FY24. The petroleum subsidy in 2022-23 was ₹9,171 crore (RE); it has declined to ₹2,257 crore in 2023-24 (Budget estimate/BE). However, the point to be noted is that compared with BE 2022-23, the decline is not that sharp. In BE 2022-23, food subsidy was ₹2,06,831 crore; fertilizer subsidy was ₹1,05,222 crore, which was less than what has been allocated in BE 2023-24. It is a laudable decision to extend food security to the poor for one more year amid rising inflation. However, rationalisation of subsidies is important so that the government can move towards reaching a fiscal deficit target of 4.5% by 2025-26.

What needs to be done for growth?

Inflation hurts the poor. The interest rate management by the RBI through inflation targeting alone cannot effectively control inflation, given the supply side shocks. Therefore, fiscal policy measures are crucial to tackle mounting inflation. Policy coordination between RBI and North Block is crucial for a sustained growth recovery process. The RBI has been increasing policy rates to tackle mounting inflation. But a high interest rate regime can hurt the economic growth process. So, the fiscal policy needs to remain “accommodative” with focus on gross capital formation in the economy with enhanced capital spending, especially infrastructure investment. In Budget 23-24, capital spending is expected to rise to 3.3% of GDP. The interest-free loan of ₹1.3 lakh crore for 50 years provided to States should help them spend and boost growth.

Also read | Fiscal deficit touches almost 60% of full-year target at end-December

Ms. Sitharaman stressed that infrastructure investment has a larger multiplier effect on economic growth and employment.

Can the govt. stick to fiscal consolidation?

The Government has not deviated from the path of fiscal consolidation. In Union Budget 2023, the medium-term fiscal consolidation framework stated that there is a need to reduce fiscal deficit-GDP ratio to 4.5% by 2025-26 from the current 6.4%. There are revenue uncertainties in post-pandemic times and also geopolitical risks, mounting inflation, supply chain disruptions and energy price volatility. At the same time, the Government has kept the fiscal policy “accommodative”, and has undertaken capital spending to support economic growth recovery. The predominant mode of financing fiscal deficit in India is through internal market borrowings. It is also to be financed through securities against small savings, provident funds and an insignificant component of external debt. In Union Budget 2023, India’s external debt is pegged at ₹22,118 crore of the total fiscal deficit of ₹17,86,816 crore in 2023-24 (BE), which is approximately about 1%. In Union Budget 2023, it is also stated that the States will have to maintain a fiscal deficit of 3.5% of GSDP of which 0.5% will be tied to power sector reforms.

What are rating agencies saying?

According to Moody’s, leveraging buoyant revenue, the Government plans to substantially increase spending on infrastructure, while cutting personal income taxes, and providing capital support for the oil sector. The Budget plans are credit positive for renewable energy companies, cement and steel producers, oil marketing companies and automakers in particular, it said.

While continued gradual fiscal consolidation contributes to the stabilisation of the government’s debt burden and supports credit quality, authorities remain unlikely to achieve their ambitious target to narrow the deficit to 4.5% of GDP by FY26, Moody’s added. According to Fitch Ratings, the slow fiscal consolidation process in the wake of the pandemic could leave public finances exposed in the event of further major economic shocks.

What lies ahead?

The Finance Minister is focusing on economic growth recovery through capex. She contends that infrastructure investment will boost private investment. In the fiscal deficit-GDP ratio, if the denominator GDP expands, it will reduce the overall fiscal deficit-GDP ratio. Her focus is on economic growth recovery to strengthen GDP.

Lekha Chakraborty is Professor NIPFP & Member, Board of Management, International Institute of Public Finance (IIPF), Munich