As the gap between expenditure and income or fiscal deficit for the Centre registered below 30 per cent during the first six months (April-September) of current fiscal (2024-25), global agency Nomura expects a ‘positive surprise’ at the end of the fiscal. However, it could be negative for growth.

A research note, titled ‘India: Is the government still struggling to spend? Negative for growth, positive for fiscal’ and authored by Nomura’s Aurodeep and Sonal Varma, said that, if capital expenditure were to grow by say, 30 per cent in October-March period (H2 of FY25) as against required rate of 52 per cent, there could be fiscal savings of 0.3 per cent of GDP. On the revenue side, corporate tax collections are trailing, but higher income tax collections should help bridge much of that shortfall. Thus, “we think there could be a positive surprise to the FY25 fiscal deficit target of 4.9 per cent of GDP,” the note said.

The Budget presented in July pegged fiscal deficit for the whole fiscal at ₹16.13 lakh crore or 4.9 per cent of GDP. Data released by Controller General of Accounts (CGA) showed, deficit reached over ₹4.74 lakh crore or little over 29 per cent. Experts feel that with the latest trend, final deficit number could be lower than the Budget Estimate. It is also estimated that capital expenditure for the full fiscal is likely to be revised lower which will help in keeping the deficit lower than the estimate. It may be noted that six-month data are used for calculating revised estimate.

CGA data showed that net tax receipts for the first six months of the current financial year were ₹12.65 lakh crore, or 49 per cent of the annual target. Total government expenditure during the period was ₹21.1 lakh crore, or about 44 per cent of the annual goal. The government’s spending has been lower due to general elections. For the first six months, the government’s capital expenditure or spending on building physical infrastructure was ₹4.15 lakh crore or 37 per cent of the annual target.

Meanwhile, Nomura report said that one key near-term drag to growth has been the drop in government spending owing to the general election-led model code of conduct. However, trends continue to underwhelm as of Q2 (July-September). Revex (Revenue Expenditure) growth fell to 4.4 per cent from 33.3 per cent in August and capex was (-)2.4 per cent, albeit improving from (–)30 per cent in August. As of H1 FY25, revex is tracking 4.2 per cent as against the budgeted target of 6.2 per cent. Capex is more concerning – down by 15 per cent thus far vs the budgeted growth of 17 per cent, implying the need to grow by a vast 52 per cent in H2 if the annual target is to be met.

Public capex shortfall when private capex remains uneven and weak would be negative for the investment outlook. Revex growth recovery seems more feasible, and positive for government consumption GDP. “We see a downside risk to our FY25 growth forecast of 6.7 per cent,” the report added.

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