Will govt meet its fiscal deficit target in FY24?

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

Cut to February 1, the fiscal prudence of the 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, the government set the target of 5.9 per cent for the ongoing fiscal, and following the fiscal consolidation path, the target is to bring down the fiscal deficit numbers to 4.5 per cent in 2025-2026. 

Fairing on Fiscal Front

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

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

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

“I don't think that the fiscal deficit target will be met very easily, but we might just make it, or we might miss it by a small margin. The 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 Advisor, Ernst and Young, told Republic Business. 

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

Slipping it or meeting it?

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

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

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

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

“There 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 added further.