The central government is on course to meet its fiscal deficit target of 4.8% of GDP for the financial year 2024-25 (FY25), according to a report by Bank of Baroda.
The report attributed this to factors such as a higher-than-expected nominal GDP growth rate, steady revenue receipts, and controlled expenditure growth. It said, “We believe that government remains on track to meet its fiscal deficit target of 4.8% for FY25.”
The report highlighted three major reasons why the government is likely to achieve its fiscal deficit goal. Firstly, the nominal GDP growth rate is expected to be 9.9%, slightly higher than the 9.7% projected in the Union Budget. A higher GDP growth rate typically supports better revenue collections and helps manage fiscal deficit targets.
Secondly, government spending had started slowly in the first half of the fiscal year due to the general elections. However, the pace picked up in the latter half (H2), ensuring that overall expenditure remained in line with targets. The latest numbers show that spending remains on track with no major deviations.
Thirdly, a steady momentum in revenue receipts has also helped in keeping the fiscal deficit under control.
What Else?
Despite some slowdown in corporate tax collections, indirect tax revenues, particularly customs duties and Central Goods and Services Tax (CGST), have improved. Income tax collections have remained stable, further supporting overall revenue growth.
As of January 2025, the central government has utilized 75.7% of its revised expenditure estimate, compared to 74.7% in the same period last year.
Several key ministries, including Railways, Consumer Affairs, Rural Development, Defence, Home Affairs, Education, and Health, have spent more than last year as a percentage of their revised estimates. However, as ministries approach their revised spending targets, the pace of expenditure is expected to moderate in the coming months.
Given these trends, Bank of Baroda expects the government to successfully meet its fiscal deficit target of 4.8% for FY25. The report suggests that with continued revenue collection and controlled spending, fiscal discipline will be maintained in the remainder of the financial year.
