The government is aiming for the fiscal deficit target of 4.9 per cent of GDP in Budget Estimates 2024-25 in line with the glide path of fiscal consolidation to reach a fiscal deficit below 4.5 percent by FY 2025-26.
“Notwithstanding continued global uncertainties, the Indian economy has broadly remained resilient and smoothly absorbed the global shocks. The government plans to continue with a nimble and well calibrated strategy to retain the flexibility to respond to emerging challenges. Therefore, pre-fixed annual targets for fiscal consolidation have not been proposed as they may become too restrictive in an uncertain environment. It may be noted the government has remained steadfast on the glide path of fiscal consolidation announced in 2021-22. It is proposed to continue with this policy,” the Budget documents said.
The fiscal policy stance in BE 2024-25 is twofold: first, to provide positive impulses to the growth environment, and second, to make the domestic economy more resilient to global headwinds. The augmented capex plan has a multiplier effect and is expected to strengthen domestic growth momentum through crowding-in of investment. Enhanced investments in generation of new employment opportunities, skilling, productive capacity building and social security are integral parts of this fiscal policy stance.
The Budget math
In BE 2024-25, revenue receipts and revenue expenditure of the Central Government are estimated at Rs 31.29 lakh crore and Rs 37.09 lakh crore.This translates into a ratio of revenue receipts to revenue expenditure of 84.4 per cent in BE 2024-25. However, cona siderable portion of revenue expenditure of the Central Government is Grants-in-Aid for capital creation provided to States and other autonomous bodies. If an adjustment on this account is made, the ratio of revenue receipts to revenue expenditure is estimated at 94.3 per cent in BE 2024-25. This ratio is higher than the 83.9 per cent estimated in RE of FY 2023-24.
The ratio of Capital Expenditure to Fiscal Deficit measures the extent to which borrowed resources are used for financing the capital expenditure (or asset creation). In BE 2024-25, this ratio is estimated at 68.9 per cent, higher than 54.8 per cent in RE of FY 2023-24 and 42.6 per cent in FY 2022-23. In the context of Effective Capital Expenditure (sum of capital expenditure plus the Grants-in-aid for creation of capital assets), the ratio is estimated at 93.1 per cent in BE 2024-25 compared to 73.3 per cent in RE of FY 2023-24, indicating improved quality of public spending. For financing the Fiscal Deficit in BE 2024-25, borrowing from NSSF is estimated at about Rs 4.20 lakh crore; whereas, those from external sources and State Provident Funds are estimated at Rs 15,952 crore and Rs 5,000 crore (on Net basis), respectively.
The gross and net borrowings in BE 2024-25 are 9.2 per cent and 1.5 per cent lower than gross borrowings of Rs 15.43 lakh crore and net borrowing of Rs 11.80 lakh crore in RE 2023-24, respectively.
2023-24 figures
Continuing on the path of fiscal consolidation witnessed in the post-pandemic years, the fiscal deficit of the Union Government declined to 5.6 per cent of GDP as per Provisional Actuals (PA) published by the Controller General of Accounts (CGA), while the revenue deficit declined to 2.6 per cent of GDP in FY 2023-24, the government said.
Revenue receipts have shown continued buoyancy in the past years, driven by robust growth in tax collection. As per the PA of 2023-24, the gross tax revenue and tax-net to Centre increased by 13.4 per cent and 10.9 per cent, respectively. The total expenditure of the Union Government registered a growth of 5.9 per cent in FY 2023-24 (PA). While the Union Government, in the past years prioritised capital expenditure to sustain and enhance growth, the fiscal policy also assisted in achieving the longer-term objective of ensuring strong macro-economic fundamentals.
