Mid-Year Review: Govt sets focus on public spending, social security net

Targets fiscal deficit 'lower than 4.5% of GDP'

Ahead of the 2025-26 Budget presentation, the finance ministry’s Mid-Year Review for 2024-25 said that the thrust 

of the government during the next financial year will be on “improving the quality of public spending” while simultaneously “strengthening the social security net for the poor and needy.”

  In a statement on trends in receipts and expenditures for the first half (April–September) of FY25, tabled in Parliament on December 20 and released on Monday, the finance ministry reaffirmed its commitment to the fiscal consolidation glide path, targeting a fiscal deficit “lower than 4.5 per cent of GDP” by FY26.

 

“This approach would help further strengthen the nation’s macroeconomic fundamentals and ensure overall financial stability,” the ministry stated.  

The 2024-25 Budget was presented against a backdrop of global uncertainties created by conflicts in Europe and West Asia, the ministry noted. “India’s sound macroeconomic fundamentals have cushioned the country from the vagaries afflicting the global economy. It has also helped the nation pursue growth with fiscal consolidation. As a result, India retains its pride of place as one of the fastest-growing economies in the world. However, risks to growth still remain,” it said.  

India’s economic growth, measured by gross domestic product (GDP) expansion, was estimated at 6 per cent during H1FY25, with gross value added (GVA) growth at 6.2 per cent over the same period.  

 

The finance ministry did not table the Medium-Term Expenditure Framework Statement, 2024, as mandated under the Fiscal Responsibility and Budget Management (FRBM) Act, 2003, citing the need to “retain a fair degree of flexibility” in fiscal policymaking amid global uncertainties.  

“Since the presentation of the Union Budget for 2024-25 (Regular) in July 2024, global headwinds and associated risks are yet to abate. The global situation has become even gloomier due to further escalation of conflicts among certain countries. Given the prevailing global economic and security environment, it is necessary for the government to retain a fair degree of flexibility in fiscal policy so as to be able to respond to any fallout from adverse global events,” it said. 

When presenting the FY25 Budget in July, the government informed Parliament that rolling targets for FY26 and FY27 were not provided due to unprecedented global uncertainty, which impedes reasonable assumptions or projections for receipts and expenditures in the short to medium term. 

 

For FY25 Budget Estimates (BE), the fiscal deficit was pegged at Rs 16.13 trillion or 4.9 per cent of GDP, financed through Rs 11.13 trillion from the market (government securities and treasury bills) and Rs 5 trillion from other sources, including the National Small Savings Fund, State Provident Fund, external debt, and cash balance drawdowns.

 

In H1FY25, tax revenue (net to the Centre) reached 49 per cent of BE, exceeding the five-year moving average of 45.3 per cent. Similarly, non-tax revenue (NTR) stood at 65.5 per cent of BE, higher than the five-year moving average of 58.7 per cent. 

 

However, capital expenditure at 37.3 per cent of BE in H1 FY25 lagged behind the five-year moving average of 46.4 per cent.

 

Aditi Nayar, chief economist at ICRA, projected that the central government’s capex target of Rs 11.1 trillion for FY25 would fall short by at least Rs 1 trillion, offsetting any shortfall in disinvestment and taxes. “Additionally, the modest net cash outgo under the first supplementary demand for grants will likely be offset by expenditure savings in other departments and ministries, posing no risk to the fiscal deficit. Consequently, we expect the fiscal deficit to trail the FY25 budget estimate of Rs 16.1 trillion or 4.9 per cent of GDP,” she said.