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19 Nov 2024
Official data showed a significant reduction in the fiscal deficit between April and May, indicating financial improvement. Analysts predict a faster fiscal consolidation than expected, potentially enhancing expenditure.
Aditi Nayar from ICRA noted the positive revenue trend, showcasing opportunities for economic growth and sustainability.
The central government's fiscal deficit for the first two months of FY25 narrowed to 3% of the annual target, compared to 11.8% a year earlier. This improvement was driven by increased revenue, particularly from a substantial central bank dividend in May, and reduced expenditure, effectively closing the April gap.
In April, the deficit was 12.5% of the full-year target, up from 7.5% the previous year. The improved May performance keeps the government on track to meet its target of containing the fiscal gap at 5.1% of GDP for FY25, with plans to reduce it further to 4.5% of GDP in FY26.
Official data showed that the fiscal deficit between April and May was ₹50,615 crore, compared to ₹2,10,287 crore a year earlier. In May alone, the government experienced a rare fiscal surplus of ₹1.6 lakh crore, driven by a record ₹2.11 lakh crore central bank dividend and reduced capital and revenue spending due to the general election.
In the first two months of this fiscal year, revenue expenditure grew by 4.7% from the previous year, while capital spending dropped by 14.4%. The moderation was sharper in May alone, with capital expenditure halved and revenue spending down by 33% compared to the previous year. As a result, total expenditure between April and May decreased by 0.4% to ₹6.23 lakh crore.
"The revenue upside seen from non-tax—and to a smaller extent—tax receipts suggests room to both boost expenditure and target a faster fiscal consolidation than what was pencilled into the Interim Budget for FY2025," said Aditi Nayar, chief economist at ICRA.
Total receipts until May reached ₹5.73 lakh crore, up 37.8% from a year earlier and well above the targeted full-year increase of 10.8%, thanks to better-than-expected tax and non-tax revenue. Net tax receipts until May rose 14.7% to ₹3.19 lakh crore, while non-tax revenue surged 87% to ₹2.52 lakh crore.
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