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Fiscal Deficit for FY24 Surpasses Estimates at 5.6%; Substantial Reduction in Subsidies

June 3, 2024

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Fiscal deficit in April constitutes 12.5% of the FY25 goal; RBI’s significant dividend offers fiscal flexibility.

India’s fiscal deficit for the previous financial year was reported at 5.6% of the GDP, which is lower than the revised estimate of 5.8%, attributed to higher-than-expected revenue and reduced spending. The initial budget estimate for FY24 was set at 5.9%. In concrete terms, the deficit amounted to ₹16.5 trillion, compared to the revised estimate of ₹17.3 trillion and the initial budget estimate of ₹17.8 trillion, as per the Controller General of Accounts’ data.

The fiscal deficit target for the ongoing financial year is pegged at 5.1% of GDP, with the government’s fiscal consolidation trajectory aiming to reduce the deficit to below 4.5% by the fiscal year 2025-26. Nonetheless, the government has a ₹2.1 trillion dividend from the Reserve Bank of India, which could provide room to further decrease the deficit.

A senior official suggested that the RBI dividend might allow for a reduction in the fiscal deficit target from 5.1%. The fiscal year’s end saw tax and non-tax revenues exceeding revised estimates presented in February’s interim budget, which were based on the government’s income and expenditure performance over ten months. A significant increase in non-tax revenue was noted, primarily due to elevated dividend receipts.

The total expenditure for FY24 was ₹44.4 trillion, slightly below the revised target of ₹44.9 trillion and the budget estimate of ₹45.0 trillion. Revenue receipts for the year reached ₹27.2 trillion, surpassing both the revised estimate of ₹26.9 trillion and the budget estimate of ₹26.3 trillion. The government’s focus on capital expenditure continued, with an increase to ₹9.48 trillion in FY24 from ₹7.39 trillion the previous year, although the capex target was revised downward from ₹10 trillion to ₹9.49 trillion.

The subsidy expenditure for FY24 contracted to ₹4.1 trillion from ₹5.3 trillion the prior year, primarily due to reductions in food and fertilizer subsidies. Tax revenue stood at ₹23.2 trillion, marginally above the revised estimates but below the budget estimate of ₹23.3 trillion. Non-tax revenue experienced a substantial surge, exceeding the budget estimate by ₹1 trillion. Dividend and profit proceeds were ₹79,443 crore more than revised estimates, culminating at ₹1.70 trillion. The total non-tax revenue was ₹4.01 trillion.

In the first month of the current fiscal year, the deficit was ₹2.1 trillion, representing 12.5% of the fiscal year’s budget target of ₹16.8 trillion. This marked a significant increase from the 7.5% of the target recorded in April of the previous year. The rise in the deficit was largely due to a spike in interest payments, which reached 10.8% of the budget estimates, up from 4.4% in April 2023. Interest payments in April this year were ₹1.28 trillion, in contrast to ₹47,929 crore in the same month last year.

ICRA’s chief economist, Aditi Nayar, commented that the fiscal dynamics look promising for FY2025, thanks to sustained robust GST collections and a larger-than-expected RBI dividend payout. The latter is expected to provide an additional ₹1.0 trillion for increased spending or more pronounced fiscal consolidation.

Total receipts in April amounted to ₹2.13 trillion, or 6.9% of the budget estimates. Tax receipts were ₹1.84 trillion, and non-tax revenue was ₹27,295 crore. The total expenditure incurred was ₹4.23 trillion, or 8.9% of the budget targets for the year, with capital spending at ₹99,235 crore, also 8.9% of the target.

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