India’s fiscal deficit is expected to be 19 basis points lower at 4.75% of the gross domestic product (GDP) than budgeted in 2024-25, due to fiscal discipline and slower economic activity in the first half of the year, India Ratings and Research (Ind-Ra) said on Wednesday.
The government is on path to achieve the target of 4.5% in 2025-26, it noted.
In her budget speech in July, Finance Minister Nirmala Sitharaman announced the fiscal deficit to be at 4.9% of the GDP in the current financial year, and below 4.5% in 2025-26.
“From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the Central Government debt will be on a declining path as percentage of GDP,” she added.
Fiscal deficit is the difference between the government’s spending and its revenue.
High frequency indicators suggest a slowdown in the economic activity in the first half of 2024-25, partly due to slower government spending, the agency mentioned in a release. “In recent times, the union government has overachieved from its fiscal consolidation commitments made in the union budget,” it added.
These factors are expected to keep the fiscal deficit in 2024-25 lower than budgeted.
Additionally, the revenue deficit is projected to be 12 basis points lower at 1.66% of GDP in the current financial year than budgeted at 1.78% of GDP.
“The union government’s fiscal outlook for 2024-25 looks promising with the tax/GDP ratio likely to be higher than the budget estimate. Despite some slippage on subsidies, the capital expenditure is expected to be lower around Rs 0.6 trillion,” said Devendra Kumar Pant, Chief Economist and Head Public Finance, Ind-Ra.
It was Rs 11.1 lakh crore in 2024-25 as per the budget estimates.
“Even with this slippage, the capex in 2024-25 is estimated to have grown 10.6% (FY25 (BE): 17.6%),” Pant noted.
The capex growth was impacted by the general elections in May this year. The capex to GDP ratio is estimated to be at a two-decade high at 3.21%, according to Ind-Ra.
While tax revenues are expected to be better, non-tax revenues and disinvestment will likely underperform.
Both gross and net tax revenues are expected to reach a 17-year high, at 12.02% of GDP and 8.08% of GDP, respectively, the agency mentioned.
Corporate and income tax collections grew by 6.5% and 20.7% year-on-year, respectively, in 2024-25, as of November 10, according to official data.
Ind-Ra estimates revenue receipts at 9.69% of GDP than 9.59% budgeted for 2024-25.
