India’s fiscal deficit contracts to ₹4.7 trillion in April-Sept 2024

India’s fiscal deficit for the April-September period this year contracted to ₹4.7 trillion or 29% of the FY2025 budget estimates, from ₹7 trillion or 39.3% in April-Sept last year, driven by the RBI’s dividend payment in May this year and year-on-year contraction in capital expenditures.

Considering the contraction in capital expenditure in the six months period, the market research experts estimate that the fiscal deficit will print in line or trail the FY2025 revised budget estimate of ₹16.1 trillion, or 4.9% of GDP.

The data released by the Ministry of Finance on Tuesday showed that the Government of India has received ₹16,36,974 crore (51.0% of corresponding BE 2024-25 of Total Receipts up to September 2024) comprising ₹12,65,159 crore Tax Revenue (Net to Centre), ₹3,57,214 crore of Non-Tax Revenue and ₹14,601 crore of Non-Debt Capital Receipts. ₹5,44,803 crore has been transferred to State Governments as Devolution of Share of Taxes by the Government of India up to this period, which is ₹89,359 crore higher than the previous year.

The data showed that the total expenditure incurred by the government of India is ₹21,11,494 crore (43.8% of corresponding BE 2024-25), out of which ₹16,96,528 crore is on revenue account and ₹4,14,966 crore is on capital account.

Out of the total revenue expenditure, ₹5,15,010 crore is for interest payments, and ₹2,14,658 crore is for major subsidies.

Data shared by Controller General of Accounts showed that in the first six months of the current fiscal year, the government’s net tax collection rose by 9% from the prior year period, non-tax revenues increased by 51%, boosted by the RBI dividend, and revenue expenditure grew by a modest 4%, while capex contracted by 15%.

On 22 May 2024, RBI paid a record dividend of ₹2.11 lakh crore to the Government of India for the fiscal year 2023-24. This is an increase of 140% over the fiscal year 2022-2023, reflecting improved earnings from the RBI’s foreign exchange holdings and other investments.

Aditi Nayar, chief economist and head of research and outreach at ICRA Ltd, said that after the lackluster Q1 amidst the parliamentary elections, the central government’s capex expanded sharply in July from the prior year period. Still, she added that the momentum could have been sustained in the subsequent two months.

Nayar said, “Overall, capex rose by 10.3% from the prior year in Q2 FY2025, which should support economic growth in that quarter.”

She added that to meet the FY2025 budgetary estimates, the government of India needs to incur a capex of approximately ₹1.16 trillion per month during H2 FY2025, which entails a considerable expansion of 52% relative to H2 FY2024.

Adding that such expansion is somewhat challenging at this juncture, she added that the market research firm expects the capex target of ₹11.1 trillion for FY2025 to be missed by at least ₹0.5 trillion.While corporate tax collections have been tepid, rising by just 2% from the prior year in H1 FY2025, income tax collections have expanded by a robust 25% during this period, although these trends may have been partly distorted by the timing of refunds.

Nayar added that market research firm believes that income tax collections may surpass the FY2025 revised budget estimates of ₹11.5 trillion, unless large refunds are released in the latter part of the fiscal, while corporation tax inflows may print in line or slightly lower than the target.

Overall, we believe that the miss in the capex target is expected to provide some cushion to absorb the shortfall on account of disinvestments and taxes.

She said, “Accordingly, ICRA expects the fiscal deficit to print in line or trail the FY2025 RBE of ₹16.1 trillion or 4.9% of GDP, at the current juncture.”