India’s fiscal deficit for April-August 2024 stood at ₹4.35 trillion, representing 27% of the full-year target. This figure is significantly lower than the corresponding period in 2023, when the fiscal deficit had reached ₹6.43 trillion, or 36% of the annual target. The reduction is attributed to higher tax receipts, a generous dividend payout from the Reserve Bank of India (RBI), and lower government expenditure in the first quarter of FY25.
What is Fiscal Deficit?
Fiscal deficit is the gap between the government’s total revenue and total expenditure. When a country’s expenditure exceeds its revenue, it leads to a fiscal deficit, a critical measure of the financial health of the economy.
Key Contributing Factors
1. Higher Tax Receipts: The government saw a boost in net tax receipts, which stood at ₹8.74 trillion during this period, 33.8% of the target set in the FY25 budget. This rise in revenue was primarily driven by improved collections from income tax and GST.
2. RBI Dividend Payout: One of the main contributors to this year’s fiscal balance is the RBI’s record dividend payout of ₹2.11 trillion for FY24, up 141% from the previous year. This unprecedented payout helped fill the gap left by public expenditure, cushioning the deficit.
3. Reduced Government Expenditure: The total government expenditure during April-August was ₹16.52 trillion, which is lower compared to the same period last year. Notably, capital expenditure—spending on building infrastructure—reached ₹3.01 trillion, which is 27% of the annual estimate. This marked a drop from ₹3.74 trillion spent during the same period last year, mainly due to the government focusing on restraining expenditures in the first quarter amid impending elections.
Long-Term Goals and Challenges
The government has committed to reducing the fiscal deficit to 4.9% of GDP for FY25, compared to 5.6% in FY24. This target aligns with India’s long-term fiscal glide path, which aims to bring the deficit down to 4.5% by FY26. Experts, however, warn that for this target to be achieved, the government will need to significantly increase its capital expenditure in the remaining months of FY25, especially in infrastructure projects post-monsoon.
Although the government has already spent 46.9% of its total subsidy bill in the first five months, mainly on food subsidies, benign global commodity prices are expected to help contain the fertilizer subsidy bill. Nonetheless, the central government must accelerate its infrastructure investments while maintaining fiscal discipline to meet its ambitious fiscal targets.
Conclusion
The narrowing of India’s fiscal deficit to 27% of the FY25 target showcases a positive trend, thanks to stronger revenue receipts and strategic expenditure management. However, the challenge remains for the government to sustain this balance while stepping up its capital investments in the latter half of the fiscal year.
Source: This article is based on information from LiveMint and Business Standard.
Key Highlights:
- India’s fiscal deficit for April-August 2024 is ₹4.35 trillion, 27% of the full-year target.
- Higher tax receipts and RBI’s ₹2.11 trillion dividend helped reduce the deficit.
- Government’s capital expenditure was ₹3.01 trillion during this period, lower than last year.
- The fiscal deficit target for FY25 is 4.9% of GDP, with a long-term goal of reducing it to 4.5% by FY26.
