Budget 2024: All you need to know about fiscal deficit

A key metric of the Union Budget, fiscal deficit represents the gap between the government's income and expenditure

Finance Minister Nirmala Sitharaman will present the Union Budget 2024 on February 1. In her budget speech while presenting the Union Budget for F 2023-24 she announced a fiscal deficit target of 5.9 percent of GDP, which was far below the 6.4 percent in FY 2022-23.

All eyes will be on the fiscal deficit target during the presentation of the Union Budget for FY2024-25. The fiscal deficit touched 39.3 percent of the full-year target for FY23 in the first half of the financial year, as of September 30, 2023. As per the Controller General of Account (CGA) data, the fiscal deficit stood at Rs 7.02 lakh crore

What is Fiscal Deficit?

A key metric of the Union Budget, fiscal deficit represents the gap between the government's income and expenditure. It is a simple indicator of the amount the government may borrow to meet the shortfall in revenue. A higher fiscal deficit indicates that the government’s borrowing for the financial year could be higher.

While the bulk of the government’s requirements are met from its earnings from taxes and other sources, very rarely does any major economy have surplus funds in public coffers at the end of the year.

In budget terms, it represents the difference between the government's total revenue receipts (tax and non-tax) and capital receipts. The governments look for other sources to borrow money to meet expenditure targets.

How does the government cover the shortfall in revenue?

The government raises loans from various sources to meet the shortfall in revenue. The government floats the dated government securities through an auction. The Reserve Bank of India (RBI) conducts these auctions on behalf of the government.  Apart from fixed coupon securities, the government also issues floating-rate bonds and treasury bills to raise funds.  The government also borrows money from individuals through a range of savings schemes, which include the post office savings account, national savings certificates and public provident funds (PPF).

Budget 2024: What to expect on fiscal deficit target

The Union Budget for FY 2024-25 will be an interim budget instead of a full-fledged budget as the Lok Sabha elections are scheduled to be held in April-May 2024. All will be keeping a watch on the Finance Minister’s announcement on the fiscal deficit.

The 15 Finance Commission had proposed reducing the fiscal deficit to 4.5 percent from the budget target of 5.9 percent of the gross domestic product, by FY 2026. While the exact figures are yet to be finalised, the targeted fiscal deficit for FY 2025 is likely to be lowered. The Economic Survey 2023 has projected GDP growth of 6-6.8 percent in FY 2024, depending on the trajectory of economic growth. Further, the survey estimated baseline GDP growth of 11 percent in nominal terms and 6.5 percent in real terms in FY24.

For a fiscal deficit of 5.9 percent in FY 2024, the government had provisioned net market borrowing from dated securities estimated to be at Rs 11.8 lakh crore. The balance finance was provisioned from small and other sources. The gross market borrowing was expected at Rs 15.4 lakh crore, as per the Budget announcement.

In her budget speech for 2023-24, Finance Minister Nirmala Sitharaman stated that the total receipts other than borrowing are estimated to be Rs 27 lakh crore whereas the total expenditure will be Rs 45 lakh crore. The tax receipts for FY 2023-24 were estimated to be Rs 23.3 lakh crore.

India's fiscal deficit for the first seven months of FY 2023-24 stood at Rs 8.04 lakh crore, 45 percent of the projected estimate, according to government data released in November 2023.

While the government appeared to be running behind the target to achieve estimated proceeds from disinvestment efforts, it claimed that the fiscal deficit was in control as per the estimates.

The government realised Rs 10,500 by disinvestment in various Central Public Sector Enterprises (CPSEs) by December 2023, as against the targeted Rs 51,000 crore in a full year, Minister of State for Finance Bhagwat Karad told the Lok Sabha in December.

The direction of the government’s economic policies depends heavily on the fiscal deficit targets and spending priorities. For the upcoming year, the government is expected to cut down on revenue expenditure with an increased focus on capital expenditure to boost economic growth.