India’s April-May fiscal deficit at ₹50,615 crore, narrows to 3% of FY25 target: CGA

New Delhi: In what could aid the Centre's path to fiscal consolidation, India's fiscal deficit during the April-May 2024 period declined significantly compared to the same period of 2023. 

This happened on the back of a slowdown in the Centre's capital expenditure outlay during the general election period, higher revenue receipts, and a record ₹2.11 trillion dividend announced by the Reserve Bank of India (RBI).

India’s fiscal deficit during the first two months of FY25 stood at ₹0.51 trillion, or 3% of the budgeted annual estimate ( ₹16.85 trillion for FY25), according to data released on Friday by the Controller General of Accounts.

In comparison, the fiscal deficit for the April-May 2023 period was at ₹2.10 trillion, or 11.8% of the annual estimate of ₹17.87 trillion for FY24.

Aditi Nayar, chief economist and head of research and outreach at rating agency Icra Ltd, said the reduction happened because the government witnessed a fiscal surplus of ₹1.6 trillion in May 2024 owing to the large RBI dividend transfer of ₹2.1 trillion that month.

“The revenue upside as 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 into the interim budget for FY2025,” Nayar said.

Last month, the RBI board approved a record ₹2.11 trillion dividend for FY24, accounted for in FY25, a 141% jump from the ₹0.87 trillion dividend payout in the previous fiscal year.

The decline in the deficit during the April-May 2024 period, against the same period of the previous year, came amid a fall in government spending on capital expenditure, which usually sees a slowdown during general elections. This year, elections were held in May before culminating in June for the results.

The target

The Centre aims to reduce the fiscal deficit—the difference between the government’s income and expenditure—to 5.1% of gross domestic product (GDP) during FY25, from 5.63% in the previous fiscal year.

According to the Fiscal Responsibility & Budget Management (FRBM) Act, the government plans to achieve a fiscal deficit of 4.5% in 2025-26.

A higher fiscal deficit leads to a higher debt burden and more spending on debt servicing, which can be unhealthy for an economy and risks devaluing the currency and impacting private investments.

The fine print

During April-May (FY25), the Centre's capital expenditure fell to ₹1.44 trillion or 12.9% of the budget estimate, from ₹1.68 trillion in the same period in FY24.

Revenue expenditure rose to ₹4.8 trillion, or 13.1% of the budget estimate, from ₹4.58 trillion in the corresponding period in FY24.

Total expenditure fell slightly to ₹6.23 trillion, or 13.1% of the budget estimate, from ₹6.26 trillion in the corresponding period in FY24.

Meanwhile, total receipts during the April-May (FY25) period stood at ₹5.73 trillion, or 18.6% of the budget estimate, of which tax receipts stood at ₹3.19 trillion, or 12.3% of the budget estimate.

Non-tax revenue stood at ₹2.52 trillion, or 63% of the budget estimate during the period.