India's fiscal deficit for April-August at Rs 4.35 lakh cr, 27% of full-year target

Fiscal deficit numbers for August

India’s fiscal deficit remained contained at Rs 4.35 lakh crore or 27 percent of the full year number between April-August as spending remained muted in the first five months of the year, according to data released by the government on September 30.

"This shows that India will not deviate from the path of fiscal consolidation and will reach the fiscal deficit - GDP target of 4.5 percent next fiscal year. However, continued revenue buoyancy is crucial to pre-empt fiscal austerity measures by cutting down expenditure to reach the threshold ratio of fiscal deficit," said Lekha S Chakraborty, Professor, NIPFP.

The deficit was a higher 36 percent during similar period in FY24. In the first five months of the fiscal, the government had spent 27.1 percent of the Budgeted estimate of Rs 11.11 lakh crore on capex compared with 37.4 percent spending during similar period last year

In July, capex had risen over 100 percent to Rs 80,209 crore compared with the previous year. It was 30 percent lower at Rs 39,727 crore between April-August 2024 and nearly half of the amount spent in July.

"Any cuts in public expenditure will results in negative growth consequences," said Chakraborty.

Data released September 30 showed core sector output contracted to a near four year low of 1.8 percent compared with 6.1 percent growth witnessed in the first quarter.

Core sector growth in the first five months at 4.6 percent was much below the 8 percent growth witnessed during April-August 2023.

Experts indicate that the government will have to step up spending to achieve higher growth target of 7 percent.

"Changing gears, the GoI may substantially accelerate infrastructure spending in the post monsoon months even if it is accompanied by a growing share of fiscal deficit as percent of the budgeted target,” said DK Srivastava, Chief Policy Advisor, EY India.

"The government may consider stepping up spending in the coming months. This would also provide a boost to the economy," said Bidisha Ganguly, chief economist, CII.

Net tax revenue also helped keep fiscal deficit contained, as revenue collection was 38.6 percent of full year target in the first five months compared with 38.5 percent during April-August 2023.

"The relatively contained fiscal deficit for Apr-Aug 2024 reflects the lower government spending due to the general elections in Q1 FY25 as well as higher net tax receipts on healthy tax collections. Net tax receipts so far this year are 34% of the annual target and are higher than the same time last year," said Sakshi Gupta, principal economist HDFC Bank.

The government keeping to its market borrowing target is also likely to help contain fiscal deficit, besides the surprisingly higher dividend from the Reserve Bank of India.

Not tax revenues were 61.3 percent of the Budgeted target of Rs 5.46 lakh crore compared with 69.5 percent during a similar period.

Borrowing calendar for second year showed that the government is expecting to rake up Rs 6.61 lakh crore, in line with the Budget, in the second half of the year, of which a significant proportion is to come from longer-tenure securities.

Overall government spending at 34.3 percent of the Rs 48.2 lakh crore Budgeted for the year, was lower than 37.1 percent spent during the similar period last fiscal.

"Going forward, even as government spending momentum continues to pick up, higher than budgeted tax collections are expected to keep the fiscal deficit at bay with the possibility of the government over-achieving its fiscal deficit target of 4.9 percent of GDP for FY25,” Gupta noted.