The Centre’s fiscal deficit continued to undershoot budget estimate, having come in at 29% of the annual target in the first half of the current financial year, compared with 39.3% of the relevant target in the year-ago period, as capex continued be sluggish and non-tax revenues buoyant.
The net tax revenues rose by 9% on year to Rs 12.65 lakh crore in H1FY25, trailing the required growth rate of 11.8% to achieve the annual target.
On the other hand, non-tax revenues expanded by 51% to Rs 3.57 lakh crore in H1FY25 as against the flat growth required to meet the FY25 target. Non-tax revenues were lifted by Rs 2.11 trillion dividend from the RBI as against the budget estimate of Rs 80,000-90,000 crore.
Expenditure growth was modest as capex continued to decline while revenue expenditure growth broadly remained close to budget growth estimated.
In September 2024, the Centre’s capex fell by 2.4% on year to Rs 1.14 lakh crore while revenue expenditure rose by 4.4% to Rs 3.45 lakh crore.
The Union government’s capex fell by 15.4% to Rs 4.15 lakh crore in April-September of FY25, partly due to a slowdown in spending in Q1 due to general elections and extended rains in Q2. Revenue expenditure rose 4.2% on year to Rs 16.97 lakh crore during the period.
“To meet the FY25 BE, the GoI needs to incur a capex of around Rs 1.16 trillion per month during H2 FY2025, which entails a considerable expansion of 52% relative to H2 FY2024. This appears rather challenging, at this juncture and we expect the capex target of Rs 11.1 trillion for FY25 to be missed by a margin of at least Rs 0.5 trillion,” ICRA Chief Economist Aditi Nayar said.
The Centre’s gross tax collections rose by 12% on year in September 2024, similar to the growth rate in H1FY25. While corporate tax collections have been tepid, rising by just 2% on year in H1FY25, income tax collections have expanded by a robust 25% during this period.
ICRA believes that income tax collections may surpass the FY25 target of Rs 11.5 lakh crore unless large refunds are released in the latter part of the fiscal, while corporation tax inflows may print in line or slightly lower than the target.
“Overall, we believe that the miss in the capex target is expected to provide some cushion to absorb the shortfall on account of disinvestments and taxes. Accordingly, ICRA expects the fiscal deficit to print in line or trail the FY25 budget estimate of Rs 16.1 trillion or 4.9% of GDP, at the current juncture,” Nayar added.