Centre’s fiscal deficit in FY25 may be a tad lower than the budgeted 4.9% of GDP

Centre’s fiscal deficit in FY25 may be a tad lower than the budgeted 4.9% of GDP

Budget 2025-26 to maintain fiscal discipline, likely to target deficit at about 4.3%.

Fiscal deficit in FY25 may be lower than the budgeted 4.9% of GDP
Surabhi
  • Dec 30, 2024,
  • Updated Dec 30, 2024, 2:58 PM IST

Amidst challenging economic conditions, the Centre is likely to have some cheer on its fiscal management with its fiscal deficit seen to be a tad better than the budgeted 4.9% of GDP for the current fiscal year 2024-25. This is also likely to help the Centre keep its fiscal deficit target for 2025-26 at an ambitious 4.3%.

According to sources, tax collections, particularly of the goods and services tax, have been doing well in the current fiscal while direct tax collections have also been robust, despite a slight slowdown in the corporate tax mop-up. It is expected that at least income tax collections could exceed the Budgeted target of Rs 11.87 lakh crore for the fiscal.

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Meanwhile, the Exchequer is also likely to get some savings on the expenditure side, with capital expenditure remaining lackadaisical in this fiscal due to the General Elections and presentation of the Union Budget in July.

For FY26, the Centre is likely to keep the pedal on fiscal consolidation, which also gives out a positive signal to both domestic and foreign investors about the stability of the economy. “There will be no cut on any expenditure and the Budget estimates, as always, will be reasonable and achievable,” said a source close to the development.

Accordingly, the fiscal deficit target is likely to be in the range of 4.3% or so, with a final decision being taken close to the presentation of the Union Budget in February.

As per official data, the Centre’s fiscal deficit between April and October 2024 was 46.5% of the full year estimate of Rs 16.13 lakh crore. Net tax revenue had touched 50.5% of the Budget estimate in the fiscal while capital expenditure had amounted to 42% of the Budgeted Rs 11.1 lakh crore for the current fiscal year.  More updated data for the period between April and November 2024 will be released on December 31.

However, analysts and experts also believe that there will be some further improvement in the fiscal performance for FY25.

“Gross tax collections have grown by a healthy 10.8% during April-October 2024, aided by a 20% expansion in income tax collections. ICRA believes that income tax collections may surpass the FY2025 RBE of Rs. 11.5 lakh crore, unless large refunds are released in the latter part of the fiscal, even as corporation tax inflows may print in line or slightly lower than the target,” said Aditi Nayar, Chief Economist and Head - Research & Outreach, ICRA in a recent note.

On the expenditure side, ICRA anticipates that the GoI’s capex target of Rs. 11.1 trillion for FY2025 will be missed by a margin of at least Rs. 1 lakh crore, which would offset any shortfall in disinvestment and taxes. Additionally, the modest net cash outgo under the first supplementary demand for grants will likely be offset by expenditure savings in other departments and ministries and is unlikely to pose a risk to the fiscal deficit. “Consequently, we expect the fiscal deficit to mildly trail the FY2025 RBE of Rs. 16.1 trillion or 4.9% of GDP,” she said.

CareEdge Ratings has said it expects the fiscal deficit at 4.8% of GDP in FY25, marginally lower than the budgeted 4.9% with expectations of lower nominal GDP growth (compared to BE).  “With lower than budgeted capex and slightly higher revenue expenditure, we project the Centre’s fiscal deficit to be at Rs 15.6 lakh crore in FY25,” it said in a recent note.  

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