GDP revision gives govt extra fiscal headroom for FY25 accounts; second supplementary demands next week

New Delhi: The union government, which is preparing to seek Parliament’s approval for additional funding for the current financial year, now has extra fiscal headroom on account of the improvement in the economic growth rate to 9.9% in nominal terms, as forecast last Friday by the statistics ministry.

Finance minister Nirmala Sitharaman will present the second supplementary demands for grants – requests for Parliament’s permission for additional spending in the current year – when the budget session reconvenes on 10 March, according to two people familiar with the development. 

The slight upward revision in the economic growth rate projection – from 9.7% in January – allows the government to have a slightly larger fiscal deficit in absolute terms without breaching the target of 4.8% of nominal GDP set for the current financial year.

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That headroom could be as much as ₹19,400 crore. In the budget presented on 1 February, the government kept a fiscal deficit of ₹15.69 trillion for the current financial year, based on the first advance estimate of economic growth, which was revised upwards on 28 February.

However, limited additional funds will be sought and a large part of it will be met through savings from various schemes within individual ministries, said one of the people quoted above.

Departments and ministries low on funds 

According to the Controller General of Accounts (CGA), the government’s principal accountant, the departments of fertilisers, coal, agricultural research and education, posts, consumer affairs, public distribution, health and family welfare, health research, and the ministries of power, railways and defence had spent more than 80% of their allocation for the current financial year by the end of January. Some of these departments and ministries will need additional funds through the re-allocating of savings from the same arm of the government or others. 

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The government’s total spending stood at ₹35.7 trillion at the end of January, three-fourth of its ₹47.1 trillion target. By then, fertiliser subsidy payouts were at 94% of the ₹1.71 trillion earmarked in the revised estimates, while food subsidy payouts were at 86% of the ₹1.97 trillion earmarked for the year. At ₹23.7 trillion, total revenue receipts were at 77% of the ₹30.8 trillion revised estimate.

‘Fiscal deficit target achievable’

Experts Mint spoke to said the 4.8% fiscal deficit target for the current year was achievable. “The implication of upward GDP revision in nominal terms is that it allows a higher fiscal deficit in absolute terms without breaching the target as a share of GDP. The 4.8% fiscal deficit target for the current year is really achievable. The originally budgeted capital expenditure for the current year has been revised down in the revised estimates, which reduces expenditure pressures,” said D K Srivastava, EY’s chief policy advisor.

The budget presented on 1 February lowered the union government’s capital expenditure, excluding grants to states for asset creation, from the original estimate of ₹11.1 trillion to ₹10.18 trillion for the current year, as last year’s general election had slowed down spending. 

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The budget also set a new target of lowering its debt from 57.1% in FY25 to 50% of GDP, give or take 1%, by 31 March, 2031. The annual fiscal deficit will be calibrated to achieve this target. “It is desirable to have a sharper debt-GDP target because, even at 50%, the government’s interest payment burden would be very high. The Fiscal Responsibility and Budget Management (FRBM) target was to lower it to 40%,” said Srivastava. 

Queries emailed to the finance ministry on Wednesday remained unanswered at the time of publishing.