FISCAL DEFICIT INCHES UP IN SEPTEMBER 2024
The month of October 2024 has been tumultuous, to say the least. The month has already seen over ₹1 Trillion of FPI selling in equities and the geopolitical risk has only continued to escalate. Iran and Israel may not be in the midst of an all-out war, but it does not look anything more dignified either. India has been experiencing contraction in core sector output and in IIP and that is being largely attributed to the slowdown in capex spending by the government and also to the constraints imposed by the trade disruptions in the Red Sea. In this background, the fiscal deficit as a share of full year FY25 targets has inched up from 27.0% of GDP at the end of August 2024 to 29.4% of GDP at the end of September 2024.
The quick impression that one gets by looking at the progress of fiscal deficit is that the government is playing it conservative in FY25. That is understandable in the light of the uncertainties that the global economy faces. To be fair, there were expectations that the government would use the mega RBI dividend of ₹2.11 Trillion to boost capex spending, but that was not the case. Government has its hands full in terms of higher DA payouts to government employees & pensioners, food subsidies, defence outlays and creating a buffer to manage the global uncertainty. In the full budget presented on July 23, 2024, the centre has taken a conscious decision to prefer reining in the fiscal deficit over boosting capex.
HOW H1FY25 FISCAL DEFICIT STACKED UP?
The table below captures the government receipts, expenditures, and the fiscal deficit for H1FY25, up to September 2024 end in granular form.
Item Heads |
Budget Estimate FY25 (₹ in Crore) |
Actuals up to Sep 2024 (₹ in Crore) |
Actuals to Target
(% achieved) |
Same Period Last Year |
Revenue Receipts | 31,29,200 | 16,22,373 | 51.8% | 53.1% |
Tax Revenue (Net) | 25,83,499 | 12,65,159 | 49.0% | 49.8% |
Non-Tax Revenue | 5,45,701 | 3,57,214 | 65.5% | 78.5% |
Non-Debt Capital Receipts | 78,000 | 14,601 | 18.7% | 24.0% |
Recovery of Loans | 28,000 | 11,434 | 40.8% | 57.5% |
Other Receipts | 50,000 | 3,167 | 6.3% | 11.4% |
Total Receipts | 32,07,200 | 16,36,974 | 51.0% | 52.2% |
Revenue Expenditure | 37,09,401 | 16,96,528 | 45.7% | 46.5% |
of which Interest | 11,62,940 | 5,15,010 | 44.3% | 44.8% |
Capital Expenditure | 11,11,111 | 4,14,966 | 37.3% | 49.0% |
Total Expenditure | 48,20,512 | 21,11,494 | 43.8% | 47.1% |
Fiscal Deficit | 16,13,312 | 4,74,520 | 29.4% | 39.3% |
Revenue Deficit | 5,80,201 | 74,155 | 12.8% | 26.6% |
Primary Deficit | 4,50,372 | (40,490) | -9.0% | 30.8% |
Data Source: Controller General of Accounts (CGA)
It may be noted here that the Controller General of Accounts (CGA) reports the fiscal deficit data with a lag of one month i.e., the fiscal deficit position at the end of September is reported as of the end of October. The data above is for H1FY25. The first column shows the revised budget estimates as of the full budget presented on July 23, 2024 and the second column is the actuals as of end September 2024. The third column shows the percentage of the full year target and the last column shows the comparable figure of FY24.
REALITY CHECK ON THE DEFICIT NUMBERS
While the month-end figures show a good picture of the accumulated data, the monthly flows also give a picture of the short term trend. Let us look at some of the monthly data flows for September 2024. The monthly fiscal deficit accretion in September 2024 stood higher at ₹0.39 Trillion, compared to ₹1.58 Trillion in the month of August 2024. At the same time, the revenue surplus in September 2024 stood at ₹0.69 Trillion, compared to a revenue deficit of ₹1.21 Trillion in August 2024. Even the primary account (fiscal deficit, net of interest) has shown a surplus in the month of September. The revenue surplus in September and the sharp reduction in fiscal deficit accretion in the same month can be attributed to a surge in receipts from CPSE dividends, interest on global bonds and from monetization of key mining and highway assets during the month of September 2024. It may be recollected that the interim budget presented in February 2024 had pegged fiscal deficit at ₹16.85 Trillion (5.1% of FY25 GDP). This was later reduced to ₹16.13 Trillion (4.9% of FY25 GDP) in the full budget presented on July 23, 2024.
GROWTH VERSUS FISCAL PRUDENCE – NO DILEMMA RIGHT NOW
In our previous monthly analysis of fiscal deficit, we had mentioned that the government may be in a dilemma between growth and fiscal prudence. For now, it looks like there is no such dilemma. The government has expressed its preference for fiscal prudence over growth; possibly because the government sees reining in the fiscal deficit as a priority right now. The only question is whether the economy is paying a steep price for this choice?
The moral of the story is that in a tough global macro environment, the government has judiciously opted for fiscal prudence over growth. That is actually a good choice!
STORY OF GOVERNMENT REVENUES UPTO SEPTEMBER 2024
For FY25, the interim budget had projected fiscal deficit at 5.1% of GDP. However, post the bumper RBI dividend of ₹2.11 Trillion, the fiscal deficit target for FY25 has been further scaled down by 20 bps to 4.9%. if FY24 experience is anything to go by, and look at the current progression in fiscal deficit, India may end FY25 lower than 4.9% of GDP.
In FY24 and FY25, the direct and indirect tax revenues have been at record levels due to enhanced economic activity. That should hold as long as nominal GDP is not impacted.
STORY OF GOVERNMENT SPENDING UPTO SEPTEMBER 2024
Fiscal deficit arises when the expenditures exceed receipts and the gap needs to be funded. For that, we need to understand how government spending for FY25 panned out in H1FY25.
Apparently, the government is expecting a lot more of capex initiatives to come from the private sector and the lag effect to positive influence growth.
TALE OF 3 DEFICITS: FISCAL, REVENUE AND PRIMARY
In India, the total receipts each year, not only fall short of the total expenditure, but also fall short of the revenue expenditure. Hence, India runs a revenue deficit as well as a fiscal deficit. Fiscal deficit, in the last 3 years has been brought down from above 9% to below 5%. Here is a quick look at the 3 critical deficits in FY25.
HOW FY25 FISCAL DEFICIT WAS FUNDED AS OF SEPTEMBER 2024
The fiscal deficit or the budget deficit is a gap that has to be funded. It is typically funded through borrowings; with the government either borrowing from the market or from the National Small Savings (NSS) account. Out of the total fiscal deficit target of ₹16.13 Trillion for FY25, India has touched fiscal deficit of ₹4.75 Trillion (29.4%) as of September 2024. For FY25, the government has set a target of raising ₹15.97 Trillion of the fiscal gap through domestic borrowings. Out of this amount, ₹11.13 Trillion will be raised via market borrowings and the balance from small savings under the (NSS). Nearly 27% market borrowing were completed till end of September 2024. However, with the fiscal deficit amount for FY25 reducing to ₹16.13 Trillion in the full budget, the H2 market borrowing target has also sobered to ₹6.61 Trillion. For now, it looks like fiscal prudence will continue to be the name of the game in FY25.
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