Centre’s fiscal deficit narrowed to 3% of the full-year estimate in the first two months of the year, compared with 11.8% during a similar period last year, owing to buoyant revenue growth and higher RBI transfer, the latest data on government spending showed on June 28.
"For these two months, the growth in tax and non-tax revenue was very buoyant, and while the revenue expenditure was on par with last year, there was some slowdown in capex at 12.9% of target as against 16.8%, which helped to compress the fiscal deficit," said Madan Sabnavis, chief economist, Bank of Baroda.
Revenue receipts did better at 19% of the target compared with 15.7%, with tax revenue growth at 12.3% compared with 11.9% in the previous month.
While net tax revenues rose 15%, non-tax revenues increased 87% owing to the RBI transfer.
In value terms, the fiscal deficit until May was just Rs 50,615 crore, owing to a surplus of Rs 1.6 lakh crore in May, with total receipts at Rs 5.73 lakh crore and total expenditure at Rs 6.23 lakh crore.
"Union had a fiscal surplus of Rs 1.6 lakh crore in May 2024; the last time the union government had a fiscal surplus was in July 2022," said Ind-Ra economists Paras Jasrai and Sunil K Sinha.
Centre had set a fiscal deficit target of 5.1% of the GDP in the interim budget, and the government now intends to bring the fiscal deficit down to 4.5% of the GDP by FY26.
The higher-than-expected RBI transfer of Rs 2.11 lakh crore has provided a cushion to the government to either reduce the deficit further or increase other expenditures, according to experts. The surplus is likely to provide the government with 0.4% fiscal headroom.
Ind-Ra said that the government would likely assume a nominal GDP growth of more than 11% and projected the fiscal deficit of the union government to be at 4.9% of GDP in FY25.
"The revenue upside seen from non-tax, and to a smaller extent, tax receipts suggest headroom to both boost expenditure and target a faster fiscal consolidation than what was pencilled in the Interim Budget for FY25," said Aditi Nayar, chief economist, Icra.
On the capex front, experts contend that the outlay will remain low in June and only rise post Budget.
The government will likely present the full Budget in the second half of July.
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