Despite the second advance estimate showing a lower nominal Gross Domestic Product (GDP) in the current financial year than factored in the budget, Finance Secretary TV Somanathan said the government will stick to the fiscal deficit target (revised estimate) of 5.8% of GDP.
As per the second advance estimate of nominal GDP released on Thursday, the fiscal deficit worked out to be 5.9% of GDP as against the revised estimate of 5.8% (from 5.9% in FY24BE). The fiscal ratios were pegged to nominal GDP in the first advance estimate of Rs 2,96,57,745 crore, which has now been revised downward to Rs 2,93,89,686 crore. As per the FY24RE, the fiscal deficit is estimated to be Rs 17,34,773 crore.
Given the likely lower capex and higher tax revenues, the government could still contain fiscal deficit at the revised estimate (RE) level of 5.8%, analysts said.
The Centre’s fiscal deficit stood at Rs 11 trillion in April-January FY24, lower than the Rs 11.9 trillion recorded in April-January FY23.
Due to lower spending on subsidies, the revenue expenditure growth was a tepid 1.4% in the first ten months of the current financial year compared with a required rate of 2.6% to meet the annual target of Rs 35.4 trillion.
The Centre’s capex fell steeply to Rs 47,600 crore in January 2024 from nearly Rs 80,000 crore in January 2023, kicking off Q4FY24 on a sour note. With Rs 2.3 trillion left to be incurred in Feb-March 2024 to meet the full-year target for capex this fiscal, substantially higher than the Rs 1.7 trillion recorded in the same months of FY23, rating agency Icra expects the Centre’s capex to undershoot the FY24 RE by at least Rs 0.5 trillion.
India’s real economy grew by 8.4% in Q3FY24, higher than most estimates. The buoyancy in indirect tax mop-up (32% yoy growth i.e. Rs 3.9 trillion) and lower subsidies widened the gap between GDP and Gross Value Added (GVA). The computation of GDP includes indirect taxes and excludes government subsidies. For the third quarter, GVA grew at 6.5%.
Spending on major subsidies at just Rs 70,409 crore in the October-December quarter of FY24 compared with Rs 1,51644 crore in the year-ago period, down 53.6%. In April-January of FY24, major subsidy spending declined 21% on year to Rs 3,15,558 crore.
Somanathan said the government will likely rein in subsidy expenditure within the revised estimate for the current financial year as fertiliser prices have declined compared to the previous year. According to FY24RE, the government will spend Rs 4.13 trillion on major subsidies—food, fertiliser and fuel.
