India’s fiscal deficit is projected to improve to 4.8 per cent of the gross domestic product (GDP) in the financial year 2024-25, according to a report by India Ratings and Research (Ind-Ra). This is an improvement from the 5.8 per cent deficit recorded in the previous financial year.
The rating agency attributes this positive revision to strong tax revenue collections and a significantly higher-than-budgeted dividend transfer from the Reserve Bank of India (RBI) to the central government. The government had initially budgeted a fiscal deficit of 5.1 per cent for FY25.
Robust direct and indirect tax mop-up has been a key driver of the improving fiscal position. The report notes that growth in tax revenues has consistently outpaced nominal GDP growth, providing a buffer to government finances.
The record Rs 2.11 lakh crore surplus transfer from the RBI has provided a substantial boost to non-tax revenues. This unexpected windfall offers the government greater fiscal space to manage expenditures without compromising the deficit target.
Despite the improved deficit outlook, the agency highlighted that challenges remain. These include the sustainability of revenue growth and potential expenditure pressures, especially from subsidies and welfare schemes, particularly in an election year.
The report suggests that the government is likely to meet its fiscal consolidation glide path, aiming to bring the fiscal deficit down to 4.5 per cent of GDP by FY26. The improved fiscal position provides room for strategic capital expenditure, which is crucial for sustaining long-term economic growth.
The agency also revised its projection for the net market borrowing of the central government for FY25 downwards. This is a positive signal for the bond market, as lower government borrowing can help keep interest rates in check.
The report concludes that while global headwinds and domestic uncertainties persist, the strong revenue performance provides a solid foundation for fiscal stability in the current financial year. |
