A sharp decline in capital expenditure amid the election season, and higher-than-budgeted growth in tax revenues enabled the Centre to rein in the fiscal deficit in April-May at 3% of the Budget Estimate for FY25. In the corresponding period of the previous fiscal, the deficit was 11.8% of the respective annual target.
The Centre’s capex halved in May to Rs 44,390 crore while revenue expenditure fell a third on-year to Rs 2.33 trillion.
Thanks to robust revenues, the month of May therefore saw a fiscal surplus of Rs 1.58 trillion. In absolute terms, Fiscal deficit stood at Rs 50,615 crore in April-May 2024 compared with Rs 2.1 trillion in the year ago period.
In April-May of FY25, the net tax revenues rose by a robust 14.7% on the year, while non-tax revenues surged by 86.9% boosted by the massive RBI dividend.
The dividend of Rs 2.11 trillion from the RBI as against the budget estimate of Rs 80,000-90,000 crore, has given an extra fiscal space of 0.4% of GDP to the Centre.
While revenue expenditure rose by 4.7% on year in April-May, capex contracted by 14.4% during this period.
“The revenue upside seen from non-tax, and to a smaller extent, tax receipts suggest headroom to both boost expenditure and target a faster fiscal consolidation than what was pencilled into the Interim Budget for FY25,” Icra chief economist Aditi Nayar said.
ICRA expects nominal GDP to rise by 10.8% in FY25, only slightly lower than the imputed growth of 11% in the Interim Budget over the provisional estimates for FY24.
“This entails an acceleration from the 9.6% growth seen in FY24, which is largely driven by our projection of a turnaround in the average WPI to an inflation of 3.3% in the ongoing fiscal from a deflation of 0.7% in the previous year. Based on transient headwinds that are expected to dampen GDP growth in H1, we are projecting the FY25 real GDP expansion at 6.8%,” Nayar said.