Aided by a strong show on revenue receipts amid robust economic growth, the Centre’s fiscal deficit as a percentage of GDP for 2023-24 surprised positively and came in at 5.6 per cent, lower than the 5.8 per cent projected at the revised estimate stage in the recent interim budget, official data showed.
This better-than-expected performance on fiscal deficit front for 2023-24 has raised hopes that the Centre could rein in fiscal deficit at a level lower than 5.1 per cent projected for 2024-25.
RBI’s dividend boost
The optimism on this front has been bolstered by RBI move this month to provide ₹2.1-lakh crore dividend bounty to the Centre.
This also indicates that the Centre is well positioned to demonstrate its fiscal consolidation commitment and achieve — if same astuteness on fiscal management is maintained — targeted fiscal deficit of 4.5 per cent of GDP for 2025-26 without disturbing the Indian growth story, economists said.
India, with a strong GDP growth of 8.2 per cent in 2023-24, is expected to maintain its status as the fastest growing large economy in the world in next few years as well, they pointed out.
The Centre’s fiscal deficit for 2023-24 stood at ₹16.54-lakh crore, which is 95.3 per cent of revised estimate of ₹17.34-lakh crore, data released by Controller General of Accounts (CGA) showed. As a percentage of GDP, the fiscal deficit stood at 5.6 per cent. Both revenue deficit and primary deficit were lower than the levels projected at revised estimate stage in the recent interim budget.
Aided by better show on non-tax revenue, overall revenue receipts for 2023-24 came in at ₹27.28-lakh crore (₹27-lakh crore at revised estimate stage).
Tax revenue
While net tax revenue for 2023-24 stood at ₹23.27-lakh crore (₹23.24-lakh crore estimated), non-tax revenues came in at ₹4.02-lakh crore (₹3.76-lakh crore in revised estimate).
Better show on fiscal deficit was aided by tight lid on total expenditure too which came in at ₹44.43-lakh crore, lower than estimated ₹44.91-lakh crore.
For 2023-24, Centre’s capital expenditure came in at whopping ₹9.49-lakh crore, marginally missing the revised estimate level of ₹9.50-lakh crore. In recent years, the Centre has been consciously adopting a capex led growth strategy, enhancing the spend from an annual level of ₹2.5-lakh crore to ₹9.5-lakh crore in 2023-24. For 2024-25, the Centre has budgeted capital expenditure of ₹11.11-lakh crore.
Commenting on the latest fiscal deficit numbers, DK Srivastava, Chief policy advisor, EY India, said the revised fiscal deficit numbers outshine the revised estimates, indicating a positive trend. “With the buoyancy observed in gross tax revenues, non-tax revenues benefited from RBI, along with increased dividends, it’s likely that the government will have ample resources to continue fostering robust capital expenditure growth in the forthcoming full year FY 25 budget while still reducing the fiscal deficit to possibly below 5 per cent of GDP,” Srivastava said.
Such a move would allow the government to demonstrate its commitment to fiscal consolidation while simultaneously supporting growth through infrastructure expansion, he added.
Madan Sabnavis, Chief Economist, Bank of Baroda said “Since the fiscal deficit has come lower at 5.6 percent in 2023-24 as against 5.8 percent, this also means that for the coming year —2025-26, it could be expecting the government to overachieve again. Instead of 5.1 percent, the government could even aim and go down to 4.9 percent”.
April 2024 Fiscal Deficit
Meanwhile, fiscal deficit for April this year stood at ₹2.1-lakh crore, or 12.5 per cent of the full year target.
Aditi Nayar, Chief Economist, Head of Research and Outreach at ICRA Ltd, said that the fiscal deficit for April 2024 has spiked on account of an unexpected surge in revenue spending, in spite of healthy tax revenues. The higher-than-budgeted dividend from the Reserve Bank of India is likely to dampen the fiscal deficit in the rest of this quarter, she added.
“Overall, the fiscal dynamics appear favourable for FY2025, amid continued resilience in GST collections and an unexpectedly large dividend payout by the RBI. The windfall arising from the latter is likely to provide additional leeway of ~Rs. 1 lakh crore to the GoI for enhanced expenditures or a sharper fiscal consolidation than what was pencilled in the Interim Budget for FY2025”, Nayar added.
‘Positive sign’
Ranen Banerjee, Partner and Leader Economic Advisory PwC India, said that the fiscal deficit numbers printing below the 5.8 percent estimate earlier will be positive for the sovereign ratings.
“It reaffirms the government’s commitment on fiscal prudence and will also have a sobering impact on the bond yields that will in turn make the government borrowing costs lower. It also gives firepower to the budget spending ability when the full budget is presented by the new government”, he said.
The deficits have printed below estimates given the higher than budgeted revenue collections and lower spending by government in March, Banerjee added.