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India’s union finance minister Nirmala Sitharaman is likely to retain the fiscal deficit target of 5.1 per cent of gross domestic product (GDP) for the financial year 2024-25 (FY25), as earlier reported by Business Standard.
This target aligns with the figure set in the Interim Budget earlier this year.
What did FM Sitharaman say about fiscal deficit in Interim Budget 2024?
In FY24, the government revised the fiscal deficit target to 5.8 per cent from the previously projected 5.9 per cent. By the end of FY24, the fiscal deficit had further narrowed to 5.6 per cent. For FY25, the fiscal deficit is projected at 5.1 per cent of GDP, amounting to Rs 16.85 trillion. The government plans to finance this deficit with gross market borrowings of Rs 14.13 trillion and net borrowings of Rs 11.75 trillion, both figures lower than those for FY24.
“We are committed to the path of fiscal consolidation, aiming to reduce the fiscal deficit below 4.5 per cent by 2025-26. The fiscal deficit in 2024-25 is estimated to be 5.1 per cent of GDP, adhering to this path,” Sitharaman stated in her Interim Budget speech.
For FY25, the total receipts, excluding borrowings, are estimated at Rs 30.80 trillion, while the total expenditure is projected at Rs 47.66 trillion. The government expects tax receipts to be Rs 26.02 trillion.
In FY24, Sitharaman revised the fiscal deficit target to 5.8 per cent of GDP, citing strong growth momentum and the formalisation of the economy. The revised estimates placed total receipts, excluding borrowings, at Rs 27.56 trillion, with tax receipts at Rs 23.24 trillion and total expenditure at Rs 44.90 trillion.
“The revenue receipts at Rs 30.03 trillion are expected to surpass the budget estimate, reflecting robust economic growth,” Sitharaman noted.
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Fiscal deficit, defined as the gap between the government’s total income and total expenditure in a year, can be managed by increasing tax collections, borrowing, or other means.
The government’s fiscal deficit for the first nine months of FY24 stood at Rs 9.82 trillion, or 55 per cent of the annual estimate of Rs 17.87 trillion, according to data from the Controller General of Accounts.
Despite increased government spending aimed at boosting economic growth, the fiscal deficit has declined due to higher tax receipts and increased non-tax revenue. Total receipts during this period were Rs 20.72 trillion, with tax receipts at Rs 17.30 trillion and non-tax revenue at Rs 3.12 trillion. Total expenditure rose to Rs 30.54 trillion from Rs 28.18 trillion in the same period the previous year.
India’s fiscal deficit has been gradually narrowing since it surged to 9.2 per cent of GDP in FY21 due to Covid-19 related expenditures. It decreased to 6.4 per cent in FY23.
Fiscal deficit in Budget 2023
In the Union Budget 2023-24, the finance minister set the fiscal deficit target at 5.9 per cent of GDP, continuing the path towards fiscal consolidation. This target was later slightly revised to 5.8 per cent.
FY23 goal: Reduce the fiscal deficit below 4.5 per cent of GDP by 2025-26.
2023-24 estimates:
- Fiscal deficit: 5.9 per cent of GDP
- Net market borrowings: Rs 11.8 trillion
- Gross market borrowings: Rs 15.4 trillion
Revised estimates 2023-24:
- Total receipts (excluding borrowings): Rs 24.3 trillion
- Net tax receipts: Rs 20.9 trillion
- Total expenditure: Rs 41.9 trillion
- Capital expenditure: Rs 7.3 trillion
- Fiscal deficit: 6.4 per cent of GDP
Fiscal deficit in Budget 2022
In the Union Budget 2022-23, the finance minister projected the fiscal deficit at 6.4 per cent of GDP, consistent with the plan to bring the deficit below 4.5 per cent by 2025-26.
2022-23 estimates:
- Fiscal deficit: 6.4 per cent of GDP
- Revised fiscal deficit for 2021-22: 6.9 per cent of GDP (up from 6.8 per cent)
- Fiscal deficit in value: Rs 16,61,196 crore
- Revised estimates for 2021-22: Rs 15,91,089 crore
- Capital expenditure outlay: Increased by 35.4 per cent to Rs 7.50 trillion (2.9 per cent of GDP)
Fiscal deficit in Budget 2021
For the financial year 2021-22, the government set a target to reduce the fiscal deficit to 6.8 per cent of GDP. At the end of FY21, the government shared the following figures:
- Fiscal deficit: 9.3 per cent of GDP (lower than the revised estimate of 9.5 per cent)
- Revenue receipts: Higher than estimated by Rs 88,000 crore
- Total expenditure: Rs 61,000 crore more than the revised estimate
- Revenue deficit: Projected at 7.42 per cent of GDP
Economists’ recommendations in 2024 pre-Budget meet
Economists emphasised the need for job creation and policies aimed at generating employment during a recent meeting with the finance minister. Ashwani Mahajan, national co-convener of the Swadeshi Jagran Manch, highlighted the importance of maintaining fiscal continuity and praised the government’s efforts in controlling the fiscal deficit.
Overall, economists after meeting with FM Sitharaman on Wednesday, expect the finance minister to retain the fiscal deficit target of 5.1 per cent in the full Budget 2024 presentation.
The full Budget for FY25 is expected to be presented in the second half of July.
