How India's fiscal deficit stays on course and aligns with annual budget targets

India’s fiscal deficit in the first five months, from April to August, for the financial year 2023-24 (5MFY24) stood at Rs 6.42 lakh crore against the budget estimate of Rs 17.87 lakh crore. During the same period in the last financial year, it was at Rs 5.41 lakh crore against the budget target of Rs 16.61 lakh crore. The average budget estimate of the fiscal deficit since the financial year 2019-20 has been Rs 12.9 lakh crore, however, the average fiscal deficit up to the first five months of the respective financial year has been Rs 6.15 lakh crore. It is almost half of the average budget target. According to the  monthly data for the month of August released by the Comptroller General of Accounts (CGA) on Friday, the fiscal deficit as a proportion of the annual budget estimate from April to August in the current financial year stood at 36 per cent. The fiscal deficit to the budget estimate in 5MFY24 is higher than the corresponding ratios of   31.1 per cent in 5MFY22 and  32.6 per cent in 5MFY23. However, it was significantly lower as compared to the respective ratios of  78.7 per cent in the pre-pandemic year 2019-20,  109.3 per cent in the pandemic year 2020-21 and an average fiscal deficit of 57.2 per cent in the last five years.

It is noteworthy that the government intends to bring the fiscal deficit below  4.5 per cent of GDP by the financial year 2025-26, according to  finance minister’s budget speech. The government has achieved the target of the fiscal deficit of 6.4 per cent of GDP in the financial year 2022-23 due to higher GDP growth than expected. The fiscal deficit is estimated to be 5.9 per cent of GDP in the current financial year. Now, if we talk about the expenditure data during the first five months of FY24 released by the CGA, the total expenditure was Rs 16.72 lakh crore against the annual budget estimate of Rs 45 lakh crore. The total expenditure incurred during 5MFY24 was 37.1 per cent of the annual target. It is higher than the corresponding period of Rs 13.90 lakh crore in the last year, 12.77 lakh crore in FY22, 12.48 lakh crore in FY21 and Rs 11.75 lakh crore in FY20. During the first five months in the last five financial years, the total expenditure has increased by 42.30 per cent. On the other hand, the total receipts, other than borrowings, were Rs 10.29 lakh crore, 37.9 per cent of the annual estimate of Rs 27.16 lakh crore. The proportion of the annual budget estimate from April to August is higher than the corresponding ratios – 37.2 per cent in FY23, 16.8 per cent in FY21, 29.8 per cent in FY20. However, it was lower as compared to the respective ratio of 40.9 per cent in FY22. Moreover, the net tax receipts Rs 8.04 lakh crore during 5MFY24, 34.5 per cent of the annual goal of Rs 23.31 lakh crore. During the period, it was Rs 7.00 lakh crore, 36.2 per cent of BE of Rs 19.35 lakh crore in FY23. It was, Rs 6.45 lakh crore, 41.7 per cent of BE of Rs 15.45 lakh crore in FY22, Rs 2.84 lakh crore, 17.4 per cent of budget estimates of Rs 16.36 lakh crore in FY21, and Rs 4.05 lakh crore, 24.5 per cent of BE of Rs 16.50 lakh crore in FY20. This means in the last five years, during the first five months of respective financial years, the net tax receipt is increasing every year. The government’s non-tax revenue exhibited a high growth of 152.38 per cent from April to August due to high receipt of dividends and profits at Rs 1.07 lakh crore against the budget goal of Rs 0.91 lakh crore. It is 117 per cent of the annual target of FY24, 94 per cent of the annual goal of FY23 and 102 per cent of the budget estimate for FY22. However, the government is expected to move slowly towards fiscal consolidation through the buoyancy of tax revenue and aggressive divestment strategy of the central public sector enterprises (CPSEs). A tax is known as buoyant if the growth in tax revenues is more than proportional in response to a rise in national income. According to the Mint, the government has collected Rs 3.54 lakh crore in the first half of FY24 as advance tax in this fiscal. Corporate tax revenue made up Rs 2.8 lakh crore, while the rest came from personal income tax. The goods and services tax mop-up has also been strong. It is a sign of buoyancy. Notwithstanding, the government will have to work seriously at the front of divestment of the CPSEs. According to the DIPAM, the government has realised only  Rs 6,950 crore. It is only 13.63 per cent of the budget target of Rs 0.51 lakh crore for the financial year 2023-24. The main focus of the government is not only on fiscal consolidation, it is also making its efforts on steady economic growth amid global uncertainties and the looming threat of recession. In this line, the capital expenditure of the government from April to August exhibited a strong growth of 48 per cent. During 5MFY24, the capital spending of the government on building infrastructure was Rs 3.74 lakh crore against the annual target of Rs 10 lakh crore. The capital expenditure is higher than Rs 2.52 lakh crore in the same period of last year. India’s economy is on the path of fiscal consolidation making efforts to achieve a fiscal deficit goal of 5.9 per cent of GDP as well as walking towards economic growth and is expected to perform relatively well in FY24 as compared to other advanced, G20 countries and emerging economies of the world. The GDP data for the first quarter of the financial year 2023-24 of the  MoSPI confirms this. The author of ‘Privatisation of Public Enterprises in India’ and teaches at ITS Ghaziabad, India. He writes regularly on the issues of economic policy and political economy. Twitter: @meetdrvinay. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views. Read all the Latest News , Trending News , Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.