A commitment to fiscal consolidation in the medium term, combined with revenues from asset monetisation and privatisation, will be essential in reducing the share of interest payments in revenue expenditure to generate more fiscal headroom, economists in the finance ministry said.
“In its pursuit of fiscal consolidation through efficient and prudent fiscal management, the government continues to stick to the fiscal glide path,” according to the Economic Survey.
After the pandemic, the government has been progressing well on the medium-term fiscal consolidation roadmap to bring down the fiscal deficit to 4.5% of GDP or lower by FY26.
From a record high of 9.2% in Covid-hit FY21, the Centre has brought down fiscal deficit to 6.4% FY23 and further to 5.6% in FY24. Significant fiscal consolidation post-pandemic could be achieved largely due to buoyant revenues, tax and non-tax.
Efficient expenditure management, aided by lower borrowing costs, has led to a marginal downward revision of budgeted expenditure on interest payments in FY24. However, even though expenditure on interest payments is lower than budgeted, it constitutes 30.4% of the revenue expenditure in FY24, the Survey noted.
Strong growth in direct and indirect taxes due to resilient economic activity and increased compliance meant that the tax revenues generated exceeded the conservative budgetary estimates.
Additionally, higher-than-budgeted non-tax revenue in the form of dividends from the RBI has buffeted revenue receipts. In combination with restrained revenue expenditure, these buoyant revenues ensured lower deficits, it said. A decomposition of the fiscal deficit over the past few years reveals that with a narrowing revenue deficit, a larger share of the fiscal deficit is being accounted for by capital outlay. This suggests that the productivity of borrowed resources has improved, it said.
Within non-debt capital receipts, the proceeds from the National Monetisation Pipeline (NMP), which was announced in the Union Budget FY22, are gaining traction. The NMP listed core assets of union government ministries and public sector enterprises with a potential of Rs 6 trillion for monetisation over FY22 – FY25. During FY22 – FY24, receipts worth Rs 3.9 trillion have been recorded as against a target of Rs 4.3 trillion. “This will help improve capital allocation by investors while aiding the government in its pursuit of fiscal consolidation,” the economists said.
However, disinvestment receipts have slowed down in recent years due to delays in the execution of big-ticket sales of assets due to administrative as well as market conditions. The government could mobilise just Rs 16,507 crore in FY24 as against the initial aim of Rs 51,000 crore.
The government capex has lifted the productive potential of the economy, its time for the private sector to take the baton, the Survey said.
The Centre’s capital expenditure for FY24 stood at Rs 9.5 trillion, an increase of 28.2% on a YoY basis, and was 2.8% the level of FY20. The Government’s thrust on capex has been a critical driver of economic growth amidst an uncertain and challenging global environment.