Budget 2024-25: Centre remains committed to fiscal consolidation

The Union Budget 2024-25 presented by Finance Minister Nirmala Sitharaman on Tuesday took up as priority areas the issues raised in the General Elections 2024, including job creation, skilling, a boost to the MSME sector as well as tax relief to the middle classes.
 
But with a more robust economic environment and a better grip on its fiscal position, the Budget has improved some projections while retained others that were announced in the Interim Budget. It has further reduced its fiscal deficit targets to 4.9% of the GDP in 2024-25 while keeping the capital expenditure allocation unchanged at Rs 11.1 lakh crore. It has also retained the nominal GDP growth forecast at 10.5% for the fiscal, which was projected in the Interim Budget earlier in February.
 
“India’s economic growth continues to be the shining exception and will remain so in the years ahead. India’s inflation continues to be low, stable and moving towards the 4% target. Core inflation (non-food, non-fuel) currently is 3.1%,” the FM said in Lok Sabha while highlighting that several global uncertainties continue.
 
In what could help the economy improve its chances of a ratings upgrade by the global rating agencies, the FM also announced a further reduction in the fiscal deficit target for FY25 to 4.9% of the GDP from the Interim Budget target of 5.1%. It was at 5.6% in the provisional accounts for FY24 as against the revised estimate of 5.8%. She also underlined the government’s commitment to fiscal consolidation and said the government aims to reach a deficit of less than 4.5% of the GDP in FY26.
 
“The government is committed to staying the course. From 2026-27 onwards, our endeavour will be to keep the fiscal deficit each year such that the Central Government debt will be on a declining path as percentage of GDP,” she said.  
 
Welcoming the reduction in the deficit target, Aditi Nayar, Chief Economist, Head of Research and Outreach at ICRA noted that the new medium term fiscal consolidation path has been linked to a reduction in the debt/GDP ratio instead of continued compression of the fiscal deficit/GDP ratio. “This will allow the Government flexibility to chart an appropriate fiscal course that builds in higher capital spending as well as support to meeting the climate goals, in a fairly uncertain global environment,” she said.
 
For BE 2024-25, Gross Tax Revenue (GTR) is projected to grow by 10.8 percent over over the provisional accounts of FY24 to Rs 38.40 lakh crore.
 
With a number of tax giveaways and tweaks, the Budget has also marginally lowered the net tax revenue to the Centre to Rs 25.83 lakh crore this fiscal from the Interim Budget’s projection of Rs 26.01 lakh crore. It is however, an 11% increase from FY24’s net tax revenue to the Centre of Rs 23.26 lakh crore. Receipts from goods and services tax receipts are estimated at ₹10.62 lakh crore in BE 2024-25, registering a growth of 11% over RE and provisional accounts for FY24.  
 
But given the robust collections in FY24, the Budget estimates for tax revenue for FY25 are being seen on the conservative side.
 
In FY25, the Centre’s Non Tax Revenue is projected to be at ₹5.46 lakh crore which is 45.2 per cent more than the RE 2023–24 of ₹3.76 lakh crore, mainly on account of better dividend receipts.
 
The Centre’s total revenue is however, seen to be higher at Rs 31.29 lakh crore in FY25 as against the Interim Budget projection of Rs 36.54 lakh crore and the FY24 provisional numbers of Rs 27.28 lakh crore.
 
With the bumper dividend from the Reserve Bank of India, the Centre’s total expenditure in FY25 is seen to have risen to Rs 48.21 lakh crore with higher revenue expenditure of Rs 37.09 lakh crore in the fiscal. This is progressively higher than the Interim Budget projection of Rs 47.65 lakh crore as total expenditure and revenue spending of Rs 36.5 lakh crore. In FY24, the Centre’s total expenditure was Rs 44.4 lakh crore with revenue expenditure at Rs 34.9 lakh crore.
 
As highlighted by the FM, the gross and net market borrowings through dated securities during 2024-25 are estimated at Rs 14.01 lakh crore and Rs 11.63 lakh crore respectively, which are lower than the FY24’s Rs 15.43 lakh crore and Rs 11.8 lakh crore. The lower borrowing is expected to give a boost to bond markets.  
 
“The current Budget has extended the broad themes from the interim Budget focusing on infrastructure, fiscal consolidation, jobs, MSME, rural and agricultural support. While some near term disappointment on lack of dated borrowing cuts have weighed in bond market sentiments currently, we expect the bond markets to maintain their euphoria in the months ahead as demand supply dynamics remains very comfortable,” said Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank.
 
The target from miscellaneous capital receipts—the new umbrella term for disinvestment and asset monetisation, has been pegged at Rs 50,000 crore this fiscal from Rs 30,000 crore in FY24, much lower than the FY24 Budget estimate of Rs 61,000 crore.
 
The major subsidies as percent of GDP are expected to decline from 1.4% in RE of 2023-24 to 1.2% in BE of 2024- 25. Major subsidies, at ₹3.81 lakh crore, would constitute about 10.3% of revenue expenditure in BE 2024-25.