The Government’s fiscal deficit grew to Rs 9.82 lakh crore in April-December, accounting for 55.0 per cent of the full-year target of Rs 17.87 lakh crore for the first nine months of the current financial year, ahead of the interim Budget for 2024-25 to be tabled by the Finance Minister Nirmala Sitharaman in Parliament on 1 February.
The fiscal deficit is marginally lower than the Rs 9.9 lakh crore recorded in April-December FY2023. As per data released by the Controller General of Accounts on Wednesday, while net tax revenues rose by 11 per cent, non-tax revenues expanded by 46 per cent on the back of the RBI dividend, amidst a marginal 2 per cent growth in revenue expenditure, and a robust 38 per cent yoy expansion in capex.
The Government is likely to announce a fiscal deficit target of 5.3 per cent of GDP for FY25.
While economists are widely in agreement that the fiscal deficit target of Rs 17.87 lakh core for FY2024 would not be breached, a minor slippage in terms of the percentage of GDP is not ruled out. “ICRA is of the view that a lower nominal GDP than what the Union Budget had pencilled in, could result in the fiscal deficit printing at 6.0 per cent of GDP,” says Aditi Nayar Chief Economist of the rating agency. Fitch Ratings’ forecast is that the Government’s fiscal deficit will remain elevated, at 8.6 per cent of GDP in FY24, from 9.2% in FY23 but it expects the Government to achieve its 5.9 per cent of GDP FY24 deficit target from 6.4 per cent in FY23.
The surge in fiscal deficit in the month of December 2023 was lured by doubling of the capex on a yoy basis to Rs 880 billion and pushing up the Government’s capex by
24 per cent in Q3 FY2024, which marks a moderation from the 43 per cent yoy increase recorded in H1 FY2024. According to Nayar, as much as Rs 3.3 trillion needs to be incurred in Q4 FY2024 to meet the full year target for capex this fiscal, which appears optimistic relative to the Rs 2.5 trillion recorded in Q4 FY2023. “We expect the GoI’s capex to undershoot the FY2024 BE by Rs 0.75 trillion, which still implies a robust YoY growth of 26 per cent,” adds Nayar.
According to Fitch analysts, revenue collection is buoyant as the 2016 goods and services tax reform matures, expenditure quality has improved as capex is largely in line with the Budget’s ambitious plans, subsidy and income support spending has risen beyond Budget expectations, but spending is seen to be managed to meet the target, even in an election year.
Revenue expenditure appears likely to mildly overshoot the FY2024 BE, on account of major subsidies and MGNREGS, says ICRA WHICH projectS a lower-than-budgeted capital expenditure to partially offset the overshooting in revenue expenditure in FY2024 compared to the budgeted target. Consequently, ICRA projects the GoI’s total expenditure to exceed the FY2024 BE by a marginal Rs 50 billion.
The monthly account of the Centre upto the month of December 2023 shows the Government received 20,71,939 crore (76.3 per cent of total receipts of corresponding BE 2023-24) upto December 2023 comprising 17,29,931 crore tax revenue (net to Centre), 3,12,358 crore of non-tax revenue and 29,650 crore of non-debt capital receipts. Non-debt capital receipts consists of recovery of loans 19,597 crore and miscellaneous capital receipts of 10,053 crore. The data shows 7,47,288 crore has been transferred to state Governments as devolution of share of taxes by Government upto this period which is 1,37,851 crore higher than the previous year.
The monthly account of the Centre puts the total expenditure incurred by the Government at 30,54,217 crore (67.8 per cent of corresponding BE 2023-24), out of which 23,80,587 crore is on revenue account and 6,73,630 crore is on capital account. Out of the total revenue expenditure, 7,48,207 crore is on account of interest payments and 2,76,804 crore is on account of major subsidies.