ICRA expects the fiscal deficit to print in line or trail the FY2025 RBE of Rs. 16.1 trillion or 4.9% of GDP, at the current juncture.
Aditi Nayar,
Chief Economist & Head,
Research and Outreach at ICRA
Mumbai, 1 October , 2024: "The Government of India's (GoI's) fiscal deficit compressed to Rs. 4.4 trillion or 27% of the FY2025 BE in April-August FY2025, from Rs. 6.4 trillion in April-August FY2024, aided by the RBI’s dividend payment in the early part of the fiscal as well as the contraction in the capital expenditure. Nevertheless, the GoI’s fiscal deficit spiked to Rs. 1.6 trillion in August 2024 from just Rs. 0.4 trillion in August 2023, amid a 24% YoY contraction in revenue receipts and a sharp 33% rise in revenue expenditure in that month.
In April-August FY2025, the net tax revenues rose by 8.7% YoY, non-tax revenues expanded by 59.6% boosted by the RBI dividend, and revenue expenditure grew by 4.1%, while capex contracted by 19.5%.
After doubling on a YoY basis in July 2024, the GoI’s capex contracted by a sharp 30% to Rs. 397 billion in August 2024 from Rs. 567 billion in August 2023, amidst heavy rains. Given the trends in capex during April-August 2024, the GoI needs to incur a capex of ~Rs. 1.2 trillion per month during the last seven months of the fiscal, which portends an ambitious expansion of 41% relative to the same period of FY2023. We believe that sustaining such a high average monthly run rate seems improbable and expect the capex target of Rs. 11.1 trillion for FY2025 to be missed by a small margin.
With gross tax collections contracting by 15.8% on a YoY basis in August 2024, the growth in such collections during April-August 2024 slowed down to 12%. While corporate tax collections have been tepid, contracting by 6% YoY in April-August 2024, income tax collections have expanded by a robust 26% during this period, although these trends appear to have been partly distorted by the timing of refunds. ICRA believes that income tax collections may surpass the FY2025 RBE of Rs. 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. Accordingly, ICRA expects the fiscal deficit to print in line or trail the FY2025 RBE of Rs. 16.1 trillion or 4.9% of GDP, at the current juncture."
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