Mumbai: The continued slowdown in government spending may result a lower-than-budgeted fiscal deficit, which is likely to be down by by 19 bps or Rs 62,000 crore than the target of 4.9 percent of GDP this fiscal. This means the actual fiscal deficit could be at 4.71 percent, according to a report released by Indian Ratings, one of the leading credit rating and research agencies which provide credit opinions for India's credit markets.
Fiscal deficit is the difference between total revenue and total expenditure of the government. It is an indication of the total borrowings needed by the government to compensate the resource shortage to meet the planned expenditure.
As of October end this year, the fiscal deficit stood at Rs 4.7 trillion, or 29.4 percent of the budget estimate, the Indian Ratings report stated quoting data from the Controller General of Accounts (CGA). This was less than the 39.3 percent of budget estimate for the first half of financial year (FY) 2024.
The Centre’s as well as the states’ capital expenditure was much lower than the budgeted numbers in the first half of this financial year primarily due to general elections. However, to meet the Rs 11.11 trillion expenditure target, the same needs to be risen by 40-52 percent in the second half, according to economic analysts.
In the first half, capex contracted by over 10 percent. While data for the 15 major states show that their combined capex need to be expanded by 40 percent in the second half (H2) to meet the budgeted target for the fiscal. For the central government, it should grow at 52 percent, which is not happening, according to many analysts.
According to the latest CGA data the Centre’s capex in the first half was down 15.4 percent on-year at Rs 4.15 trillion.
While the government has actually committed to bring down the fiscal deficit to 4.5 percent in FY26, India Ratings attributes the current dip in the government spending to the slowdown in economic activity in the first half of the year.
“The Centre’s fiscal outlook for FY25 looks promising with the tax to GDP ratio likely to be higher than the budget estimate. The government is expected to improve its fiscal position from FY25 and on track to achieve its FY26 fiscal deficit target of 4.5 percent," says Devendra Kumar Pant, the chief economist at the agency.
Pant added that despite some slippages on subsidies, the capex is expected to be around Rs 62,000 crore lower than the budget estimate of Rs 11.11 trillion. Even with this slippage, the capex in FY25 is estimated to have grown 10.6 percent from 17.6 percent.
The credit rating agency expects the FY25 gross and net tax revenue to be 12.02 percent and 8.08 percent of GDP, respectively, both at a 17-year high.
The gross tax revenue in FY25 is forecast to be 28 bps of GDP higher than budgeted. Income tax and corporate tax are estimated to contribute 80.94 percent and 10.53 percent, respectively, to the additional gross tax revenue. Based on the 1H growth rate, corporate tax collection growth in H2 appears to be optimistic.
However, corporate tax and income tax collection till November 10, grew 11.2 percent and 22.6 percent, respectively. Customs duty and Central excise duty collections are estimated to have a shortfall of Rs 14,352 crore and Rs 16,367 crore, respectively while GST collections are expected to be broadly as budgeted. The net tax revenue is forecast to be 16 bps of GDP higher than estimated.
However, non-tax revenues and disinvestments will be a drag and will come down to Rs 5.46 trillion and Rs 0.78 trillion, respectively. The aggregate shortfall from non-tax revenue, disinvestment and recovery of loans is estimated to be Rs 58,995 crore which will be 18 bps of GDP. And the agency expects the revenue receipts of Centre to be 9.69 percent of GDP as against the budgeted 9.59 percent. This may result in total receipts to be Rs 5,880 crore less than budgeted or a slippages of 2 bps of GDP, the India Ratings report stated.