The Centre’s fiscal deficit came in at 46.5% of the annual target in April-October of the current financial year, aided by continued capex decline even as net tax revenue growth was flat.
The fiscal deficit was 45% of the annual target in April-October of FY24.
The net tax revenues rose by a muted 0.2% on year to Rs 13.05 lakh crore in April-October FY25, largely due to the release of two extra instalments of tax devolutions to states. The net tax revenues need to grow by 11.8% to achieve the annual target.
On the other hand, non-tax revenues expanded by 50.2% to Rs 3.99 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.
In October 2024, the Centre’s capex fell by about 8% on-year, underscoring the struggle to accelerate the pace due to delays caused on account of general elections in Q1 and extended rains in Q2. As a result, the Centre’s capex contracted by nearly 15% on year at Rs 4.7 lakh crore in April-October 2024. Analysts see little scope for the government to meet Rs 11.11 lakh crore capex target for the full year with rating agency ICRA seeing a Rs 1 lakh crore shortfall in achievement.
“To meet the FY25 target, the GoI needs to incur a capex of around Rs 1.3 lakh crore per month during November-March FY25, which entails a daunting YoY expansion of around 61%. We are apprehensive that the capex target of Rs 11.1 lakh crore for FY25 will now be missed by a margin of at least Rs 1 lakh crore,” ICRA Chief Economist Aditi Nayar said.
While lower capex by the Centre will hurt the economic growth prospects in FY25, it would help the Centre cover the likely gap in meeting the fiscal deficit target on account of likely lower nominal GDP growth as against 10.5% factored in the budget.
“The anticipated miss in the capex target is expected to offset any shortfall on account of disinvestment and taxes. Accordingly, ICRA expects the fiscal deficit to mildly trail the FY25 budget target of Rs 16.1 lakh crore or 4.9% of GDP,” Nayar said.
Gross tax collections rose by a low 1.6% on-year in October 2024, considerably lower than the growth in H125. While corporate tax collections have been tepid, rising by just 1.2% in April-October FY25, income tax collections have expanded by a robust 20.2% during this period, although these trends may have been partly distorted by the timing of refunds.