Icra sees budget pegging fiscal deficit at 4.9-5%

The budget is likely to revise revenue receipts upwards by Rs 1.2 trillion in FY25, while pegging a relatively shallower increase in the revenue expenditure.
Investment Information and Credit Rating (ICRA) Agency
Investment Information and Credit Rating (ICRA) Agency(File Photo)

MUMBAI: The record dividend from the central bank (Rs 2.11 trillion) is set to help the finance minister Nirmala Sitharaman to peg a lower fiscal deficit target at 4.9-5 per cent in the forthcoming full budget, down from the interim budget estimate of 5.1 per cent of GDP this fiscal. It is unlikely to compress the capex target of Rs 11.1 trillion, says a report.

Consequently, Icra Ratings believes that there is a high likelihood of reducing the net market borrowings by Rs 350-550 billion as against the interim budget estimate of Rs 11.8 trillion. It would augur well for yields, along with the demand boost for government securities (G-secs) due to their inclusion in the JP Morgan bond index.

The budget is likely to revise revenue receipts upwards by Rs 1.2 trillion in FY25, while pegging a relatively shallower increase in the revenue expenditure target, largely focused on the rural economy.

The agency’s feels any incremental fiscal consolidation will be challenging over the next there to four years. Moreover, the extent of off-budget capex on-budgeted in FY2022-24 must be considered while assessing the end-point of the fresh medium-term fiscal glide path beyond FY26.

Higher tax collections coupled with the record dividend from the RBI to the tune of Rs 2.11 trillion for the past fiscal will provide additional leeway of Rs 1.2 trillion to the government revenue.

Gross tax revenue in FY24 was provisionally estimated at Rs 276 billion higher than the revised estimate which dampened the embedded growth target for FY25 to 10.6 per cent, lower than the nominal GDP forecast of 10.8 per cent for the fiscal.

Accordingly, the agency believes tax collections may be revised upwards by Rs 400-450 billion in the revised budget. Consequently, net tax revenues are likely to be exceeded by Rs 200 billion. Additionally, the larger-than-expected RBI dividend would provide an upside of at least Rs 1 trillion, leading to a sharp upward revision in estimates for non-tax revenue.

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