Amid challenging economic conditions, the Center will give some cheer to its fiscal management with fiscal deficit projected at less than 4.9% of GDP in the budget for FY 2024-25. This will help the Center to keep the fiscal deficit target at an ambitious 4.3% for 2025-26.
According to sources, tax collections, especially Goods and Services Tax, have done well in the current financial year, while direct tax collections have also strengthened, despite a slight slowdown in corporate tax collections. At least income tax collections are expected to exceed the budget target of Rs 11.87 crore for the financial year.
Meanwhile, the general election and the presentation of the Union Budget in July will keep the capital expenditure low this fiscal, and the exchequer will see some savings on the expenditure side.
For FY26, the Center is likely to keep the pedal on fiscal consolidation, which gives a positive signal to domestic and foreign investors about the stability of the economy. “There will be no cost cutting and budget estimates will always be reasonable and achievable,” said a source close to the development.
Accordingly, the fiscal deficit target could be in the range of 4.3% or higher with a final decision being taken closer to the presentation of the Union Budget in February.
According to official data, the Centre's fiscal deficit between April and October 2024 is 46.5% of the full-year estimate of Rs 16.13 crore. In the fiscal year, net tax revenue reached 50.5% of the budget estimate and capital expenditure was 42% of the 11.1 million rupees budgeted for the current fiscal year. More updated data for the period between April and November 2024 will be released on 31 December.
However, analysts and experts believe that there will be further improvement in financial performance for FY25.
“Gross tax collections grew by a healthy 10.8% during April-October 2024, supported by a 20% expansion in income tax collections. ICRA believes that income tax collections in FY2025 RBE will be Rs. 11.5 lakh, though corporate tax inflows could print in line or slightly below target if no big refunds are made in the latter half of the fiscal year,” said Aditi Nair, Chief Economist and Principal Research & Head, Iqra. Recent post.
On the expenditure side, ICRA expects GoI's capex target of Rs. 11.1 trillion for FY2025 at least Rs. 1 million, which will cover any shortfall in investment and taxes. In addition, the modest net outflow under the first supplementary demand for grants will be offset by cost savings in other departments and ministries and is unlikely to pose a risk to fiscal deficit. Consequently, the fiscal deficit in FY2025 RBE will be Rs. 16.1 trillion or 4.9% of GDP,” she said.
CareEdge Ratings has said the fiscal deficit is expected to be 4.8% of GDP in FY25, marginally lower than the budgeted 4.9% expected for lower nominal GDP growth (compared to BE). “With lower than budgeted figure and marginally higher revenue expenditure, we forecast the Centre's fiscal deficit to be Rs 15.6 crore in FY25,” it said in a recent note.