A contraction in capital expenditure in August caused the Centre’s overall spending to reach just 27 per cent of the budget estimate for April-August this fiscal year, compared to 37 per cent in the same period last year, according to data from the Controller General of Accounts (CGA) released on Monday.

In the Budget, the government projected to bring down the fiscal deficit to 4.9 per cent of the gross domestic product (GDP) in the current 2024-25 financial year. The deficit was 5.6 per cent of the GDP in 2023-24. In absolute terms, the government aims to contain the fiscal deficit at over ₹16.13 lakh crore.

The Central government’s total expenditure in the four months till August stood at ₹16.5 lakh crore of BE. The expenditure was 37.1 per cent of the BE in the year-ago period. Of the total expenditure, over ₹13.51 lakh crore was in the revenue account and over ₹3 lakh crore in the capital account.

One of the key reasons for lower expenditure during the first five months was the model code of conduct during the Lok Sabha elections. Because of this, expenditure was retrained as the government was not taking any policy decision. Experts say meeting the overall capital expenditure target over ₹11.11 lakh crore will be challenging.

Missing capex target?

According to Aditi Nayar, Chief Economist of ICRA, given the trends in capex during April-August 2024, the government needs to incur a capex of ₹1.2 lakh crore per month in the last seven months of the fiscal, which portends an ambitious expansion of 41 per cent relative to the same period of FY2023. “We believe that sustaining such a high average monthly run rate seems improbable and expect the capex target of ₹11.1 lakh crore for FY2025 to be missed by a small margin,” she said.

Paras Jasrai, Senior Analyst with India Ratings & Research (Ind Ra), said improved tax collection is reflecting on devolution to the States, which was at a four-year high at 36.5 per cent of FY25 (BE) for April-August 2024. Led by the food subsidy, the government has already spent 46.9 per cent of its subsidy bill in first five months of FY25, highest in the last five years .“Although the subsidy bill is high, the softer commodity prices will keep a lid on fertilizer subsidy bill in FY25. India Ratings and Research expects the government to achieve its FY25 fiscal deficit target of 4.9 per cent of GDP,” said Jasrai.

Nayar felt that missing the capex target can provide some cushion to absorb the shortfall on account of disinvestments and taxes. “ICRA expects fiscal deficit to print in line or trail the FY2025 estimate of of  ₹16.1 lakh crore or 4.9 per cent of GDP, at the current juncture,” she said.

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