Will govt meet its fiscal deficit target in FY24?

Fiscal Prudence: It was not long back, when Finance Minister Nirmala Sitharaman me it clear where government priorities lay. On December 13, 2023, Sitharaman stood up in Lok Sabha to get supplementary grant approved and said, “Fiscal prudence is top priority of government without denying funds for welfare measures.” 

Cut to February 1, fiscal prudence of government will reflect in under control fiscal deficit numbers, when Sitharaman will stand up to present her maiden interim budget. After hitting a 6.9 per cent deficit target last year, government set target of 5.9 per cent for ongoing fiscal, and following fiscal consolidation path, target is to bring down fiscal deficit numbers to 4.5 per cent in 2025-2026. 

Fairing on Fiscal Front

According to Comptroller General of Accounts, Centre's fiscal deficit in first eight months of this fiscal year hit only 50.7 per cent  of annual target, against 58.9 per cent a year before- thanks to robust tax collection and a vigilante spending by government.  

tax collection in this fiscal has remained robust and is growing at a faster pace than estimated in last budget. tax collection's stellar growth has offset higher outgo on subsidies like food, and lower than estimated receipts from government stake sale in public sector companies. government’s net tax revenue until November grew 17.2 per cent  from a year before, higher than targeted 11.1 per cent expansion. Similarly, non-tax revenue growth hit 43.4 per cent, way above budgeted 5.4 per cent.  “We will probably meet fiscal deficit target this year which stands at 5.9 per cent. I don't think that is a tall ask, because fiscal deficit target was not that demanding. Next year, which is going to be real issue, because that is when you're having a large deficit correction, that is a tall task,” Pronab Sen, former chief statistician of India said. 

receipts from divestment was seen by government at Rs 51,000 crore in budget of 2023-2024. Till now,  government has managed to achieve only around Rs 10,000 crore, which means government is still 80 per cent short of achieving target.

“I don't think that fiscal deficit target will be met very easily, but we might just make it, or we might miss it by a small margin. reason is that direct taxes are doing very well but indirect tax buoyancy is still low and union excise duties have not done well,” DK Srivastava, Chief Policy visor, Ernst and Young, told Republic Business. 

According to experts, higher direct tax collections, RBI/PSU dividends toger will offset slippages from indirect taxes, divestment and food & fertilizer subsidy payments, implying that 5.9 per cent 

Slipping it or meeting it?

Till time First vance Estimate by National Statistical Commission was out on Jan 5, expectation on street was that government would comfortably meet fiscal deficit target for this year. 

In Union Budget 2023-2024, government budgeted nominal GDP growth at 10.5 per cent, and  fiscal deficit in absolute terms at Rs 17.9 trillion, in a bid to meet fiscal deficit target of 5.9 per cent.  However, latest vance estimate by NSO, which showed nominal growth at 8.9 per cent, lower than budgeted nominal growth of 10.5 per cent, means that eir government will have to bring down fiscal deficit in absolute terms to end fiscal with 5.9 per cent. 

If government ends fiscal year with a fiscal deficit in absolute terms at Rs 17.9 crore, government may miss target by a percentage point at 6 per cent, as many economists opined. Considering lower nominal GDP in vance estimate,  government will have to contain its fiscal deficit, in absolute terms, at Rs 17,49,807 crore in FY24, against budgeted Rs 17,86,816 crore to be able to meet 5.9 per cent deficit target relative to nominal GDP.

“Now, in a bid to end ongoing fiscal at 5.9 per cent fiscal deficit, government has to eir lower spending by Rs 37,000 crore or raise its revenue mop-up accordingly from budgeted levels,” one economist claiming anonymity said. 

“re is also a concern that is linked to nominal GDP growth vis a vis real GDP growth as far as meeting fiscal deficit targets are concerned,” Srivastava ded furr.