Fiscal deficit at 52.5% of full year target as of November 2024

1 Jan 2025 , 02:02 PM

FISCAL DEFICIT TOUCHES 52.5% IN NOVEMBER 2024

With another 4 months to go, the fiscal deficit stands at 52.5% of the full year target of ₹16.13 Trillion. Prima facie, it does look like India should stay within the annual target of fiscal deficit at 4.9% of GDP. That should set the tone for the government to aggressively take the fiscal deficit to below 4.5% in FY26. The business lobbies may scream about greater leeway on the fiscal front, but that is not a solution.

The government has a single minded focus on cutting fiscal deficit and it is absolutely right. However, there is still one risk we see. The government has deliberately gone slow on capex spending this year, as we shall see later. That is a good move considering that divestments and tax flows are likely to fall short this year. However, if the private capex does not pick up as anticipated by the government, then the entire fiscal story may look less flattering.

FY25 FISCAL DEFICIT STORY TILL NOVEMBER 2024

The table below captures the government receipts, expenditures, and the fiscal deficit for FY25, up to November 2024 end.

Item Heads	Budget Estimate FY25 (₹ in Crore)	Actuals up to Nov 2024 (₹ in Crore)	Actuals to Target (% achieved)	Same Period Last Year
Revenue Receipts	31,29,200	18,70,455	59.8%	65.3%
Tax Revenue (Net)	25,83,499	14,43,435	55.9%	61.6%
Non-Tax Revenue	5,45,701	4,27,020	78.3%	94.3%
Non-Debt Capital Receipts	78,000	23,953	30.7%	30.3%
Recovery of Loans	28,000	14,972	53.5%	72.2%
Other Receipts	50,000	8,981	18.0%	14.5%
Total Receipts	32,07,200	18,94,408	59.1%	64.3%
Revenue Expenditure	37,09,401	22,27,502	60.1%	59.0%
of which Interest	11,62,940	6,58,494	56.6%	56.3%
Capital Expenditure	11,11,111	5,13,500	46.2%	58.5%
Total Expenditure	48,20,512	27,41,002	56.9%	58.9%
Fiscal Deficit	16,13,312	8,46,594	52.5%	50.7%
Revenue Deficit	5,80,201	3,57,047	61.5%	39.8%
Primary Deficit	4,50,372	1,88,100	41.8%	42.2%

Data Source: Controller General of Accounts (CGA)

A few quick readings up to the end of November 2024. Firstly, the year has seen the government faltering on revenues. Compared to last year, the tax receipts and non-tax receipts are still well off their targets Secondly, on the expenditure front, the revenue expenditure is more than last year, but it is the capex spending that has fallen short by more than 1,200 basis points compared to last year. Thirdly, there has been a sharp spike in the revenue deficit and the fiscal deficit in November, compared to October 2024. Overall, the fiscal deficit still appears to be on target, but the quality of fiscal deficit management appears to be less than impressive.

STORY OF GOVERNMENT REVENUES UPTO NOVEMBER 2024

For FY25, the July full budget reduced the targeted fiscal deficit by 20 bps to 4.9% of GDP. This can be attributed to the bumper RBI dividend of ₹2.11 Trillion. While the fiscal deficit as percentage of GDP appears to be on track, the internals have deteriorated.

• Against the total receipts target of ₹32.07 Trillion, central government has achieved ₹18.94 Trillion as of end November 2024. That is, 59.1% of full year revenue target for FY25; sharply lower than FY24 comparable period. The revenue growth in tax and non-tax revenues have faltered sharply in recent months.
• For FY25, the target for net tax revenues (net of refunds and devolvement) was cut to ₹25.83 Trillion in the July full budget. Only ₹14.43 Trillion has come in as tax revenues, or 55.9% of full year target. That is much lower than last year. Even non-tax revenues (despite RBI dividend bonanza) has only reached 78.3% of full year target, against 94.3% achieved last year. Monetization of infrastructure assets has not picked up in FY25.
• On non-debt capital receipts, the government set the target at ₹78,000 Crore for FY25 due to subdued performance on the disinvestment front. However, this is likely to be another year when disinvestments are likely to disappoint.

The government is experiencing strain on direct and indirect taxes; and both are largely linked to economic activity and income levels.

STORY OF GOVERNMENT SPENDING UPTO NOVEMBER 2024

India has traditionally run a budget deficit (fiscal deficit) as the expenditure has substantially exceeded the revenues. Here is a quick dekko at the updated numbers for FY25.

• Total expenditure, comprising of revenue expenditure and capital expenditure, had been enhanced in the full budget to ₹48.21 Trillion for FY25. As of end November 2024, the total expenditure at ₹27.41 Trillion was 56.9% of full year target; lower than last year.
• The problem is that revenue expenditure has moved faster than last year. Till the close of November 2024, actual revenue spending was ₹22.28 Trillion, against the full year target of ₹37.09 Trillion. That is 60.1% of full year target, compared to 59.0% last year.
• Capital spending is another tricky area. Despite a modest target of ₹11.11 Trillion for FY25, total capex spending stood at just ₹5.14 Trillion as of November 2024 or 46.2% of full year budget. The pace of capex spending is sharply lower than 58.5% last year.

The government has been betting on the lag effect of legacy capex and on the private sector also chipping in. However, that does not seem to be happening.

TALE OF 3 DEFICITS: FISCAL, REVENUE AND PRIMARY

In India,  not only total receipts fall short of total expenditure; but revenue receipts also fall short of revenue spending. Hence, India runs a fiscal deficit and also a revenue deficit. Here is a quick look at the 3 critical deficits for FY25.

• Till the end of November 2024, fiscal deficit was 52.5% of full year deficit of ₹16.13 Trillion. While the fiscal deficit situation looks comfortable, the quality of fiscal deficit has deteriorated as capex spending has taken a big hit.
• Revenue deficit target for FY25 stands at ₹5.80 Trillion and as of the end of November 2024, the revenue deficit stood at ₹3.57 Trillion or 61.5% of full year target. What is more worrying is that as of November 2024, the ratio of revenue deficit to fiscal deficit stands at 42.2%; so, India has been literally borrowing for its morning breakfast.
• Finally, we come to primary deficit, which is the fiscal deficit excluding interest costs. That target had been lowered for FY25 to ₹4.50 Trillion in the full budget. As of end November 2024, the primary deficit stood at ₹1.88 Trillion or 41.8% of FY25 target.

The moral of the story is that the sobering fiscal deficit has come at the cost of capex spending; even as revenues flows and revenue spending have been under pressure.