2024-10-30 18:16:00
The lower deficit, experts said, will enable the government to contain its fiscal gap at the targeted 4.9% in 2024-25, despite a potential drop in disinvestment revenue. In absolute terms, the fiscal deficit stood at ₹4.75 lakh crore, against ₹7.02 lakh crore a year earlier. This is mainly because of a lower fiscal deficit earlier in the year when the resource mop-up had remained strong and government spending was constrained by the general elections.
The government aims to contain its fiscal deficit at 4.9% of gross domestic product (GDP) in 2024-25 and below 4.5% in 2025-26. The deficit had widened in August on the back of a post-poll spurt in revenue spending, but it shrank again in September by 33.4% from a year earlier to ₹39,344 crore.
Capital spending hit its peak this fiscal in September but—at ₹1.14 lakh crore—it still remained 2.4% lower than a year before. Experts blamed heavy monsoon downpours in various parts of the country for faltering project executions in recent months.
Meeting the FY25 capital spending target of ₹11.11 lakh crore would now entail a considerable expansion of 52% in the second half of this fiscal from a year before, said ICRA chief economist Aditi Nayar. “This appears rather challenging at this juncture,” she added.The capex target miss could provide “some cushion to absorb the shortfall on account of disinvestments and taxes,” Nayar reckoned. She said the 2024-25 fiscal deficit will likely print in line with or trail the target of ₹16.1 lakh crore, or 4.9% of the GDP. Revenue expenditure in the first half of this fiscal grew just 4.2% from a year earlier to ₹16.97 lakh crore, against the annual target of a 6.2% rise. The government’s major subsidy payout (on account of food, fertiliser and fuels) in the first half touched 56% of the annual estimate, compared with 55% a year earlier.
The pace of increase in net tax receipts in the first half of this fiscal touched 9% year-on-year, lower than the full-year target of 11.1%, to touch ₹12.65 lakh crore. Non-tax revenue mop-up, boosted by a record RBI dividend windfall of ₹2.11 lakh crore, surged 50.9% to ₹3.57 lakh crore.
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**Interview with Dr. Anjali Sen, Economic Analyst**
**Editor:** Thank you for joining us today, Dr. Sen. The recent data on the central government’s fiscal deficit for the first half of 2024-25 has shown a significant improvement. What are the key factors contributing to this reduction from 39.3% last year to 29.4% this year?
**Dr. Sen:** Thank you for having me. The reduction in the fiscal deficit can be attributed primarily to the government’s prudent management of expenditure. With a backdrop of strong resource mobilization and the constraints imposed by the general elections, the government has effectively controlled its spending. Additionally, the previous financial year’s high deficit is creating a favorable comparison this year.
**Editor:** It seems that the government is aiming for a fiscal deficit of 4.9% of GDP in this fiscal year, and even lower next year. How realistic are these targets, especially given the potential decline in disinvestment revenue?
**Dr. Sen:** While the target of 4.9% is ambitious, it is attainable if the government continues on this path of careful fiscal management. The worry about disinvestment revenues is valid, yet if other revenue streams, such as taxes, remain strong and expenditure controls are maintained, it could offset those losses.
**Editor:** You mentioned the impact of heavy monsoon downpours on capital spending. Can you elaborate on how this has affected project execution and what the government might do to mitigate these issues?
**Dr. Sen:** The heavy monsoons have indeed caused delays and difficulties in executing capital projects. The decline in capital spending, despite it reaching a peak in September, indicates that the government may need to adapt its project timelines and implement contingency plans. This could include enhancing infrastructure resilience or allocating additional resources to recover lost time in project completion.
**Editor:** What are the potential long-term implications of maintaining a lower fiscal deficit, particularly for India’s economic stability?
**Dr. Sen:** A lower fiscal deficit can lead to greater economic stability by fostering investor confidence and creating a sustainable growth environment. It allows the government to maintain essential public services while also paving the way for future investments. However, it must balance this prudence with the need for developmental spending, especially in infrastructure and social sectors, to ensure long-term growth does not stagnate.
**Editor:** Thank you, Dr. Sen, for your insights. We appreciate your time.
**Dr. Sen:** Thank you for having me. It’s always a pleasure to discuss these important topics.
