The government now plans to reduce the fiscal deficit to 4.5% of GDP by FY26, from the 5.1% of GDP objective that Center established in the interim budget.
According to the most recent data on government spending released on June 28, the fiscal deficit for the Center decreased to 3% of the full-year forecast in the first two months of this year, down from 11.8% during the same period last year. This was due to strong revenue growth and a higher RBI transfer.
“For these two months, the growth in tax and non-tax revenue was very buoyant, and while the revenue expenditure was on par with last year, there was some slowdown in capex at 12.9% of target as against 16.8%, which helped to compress the fiscal deficit,” said Madan Sabnavis, the chief economist at the Bank of Bar
Revenue receipts exceeded the objective by 19% compared to 15.7%, while tax revenue increased by 12.3% compared to 11.9% in the preceding month.
Because to the RBI transfer, non-tax revenues surged 87% while net tax receipts increased by 15%.
With total collections of Rs 5.73 lakh crore and total expenditures of Rs 6.23 lakh crore, the fiscal deficit up until May was only Rs 50,615 crore. This is because there was a surplus of Rs 1.6 lakh crore in May.
According to Ind-Ra economists Paras Jasrai and Sunil K Sinha, “Union had a fiscal surplus of Rs 1.6 lakh crore in May 2024; the last time the union government had a fiscal surplus was in July 2022.”
The government now plans to reduce the fiscal deficit to 4.5% of GDP by FY26, from the 5.1% of GDP objective that Center established in the interim budget.
Experts claim that the government now has a buffer to either increase other expenditures or lower the deficit even further thanks to the RBI’s larger-than-expected payment of Rs 2.11 lakh crore. The government will most likely have 0.4% of fiscal headroom thanks to the surplus.
According to Ind-Ra, the government is expected to estimate a nominal GDP growth of over 11% and a union government fiscal deficit of 4.9% of GDP in FY25.
“The revenue upside seen from non-tax, and to a smaller extent, tax receipts suggest headroom to both boost expenditure and target a faster fiscal consolidation than what was pencilled in the Interim Budget for FY25,” said Aditi Nayar, chief economist at Icra.
Experts predict that capital expenditures would be low in June and only increase after the budget.
Let’s understand, what is fiscal deficit ?
The entire budget will probably be presented by the administration in the second part of July.