As the fiscal year progresses, economists are scrutinizing government finances, assessing the fiscal deficit and its alignment with targets. Amid global economic challenges posed by the pandemic, India appears poised to defy the trend, with buoyant tax receipts contributing to the likelihood of the central government meeting its fiscal deficit target of 5.9% for the fiscal year 2023-24.
In the short term, economists are optimistic about the government achieving the fiscal deficit target of 5.3%. Robust tax revenues have played a pivotal role, with overall revenues currently surpassing budgeted estimates by 0.3% of the GDP. In the initial three quarters of the fiscal year, the fiscal deficit has contracted to Rs 9.06 trillion, constituting 50.7% of the Budget Estimates, in contrast to Rs. 9.8 trillion, equivalent to 58.9% of the BE, during the same period in the previous fiscal year (FY23). The Centrum strategy team anticipates that the government is well-positioned to meet its annual fiscal deficit target, attributing this prospect to strong collections from both direct and indirect taxes.
While the government continues to rely on market borrowings to fund the fiscal deficit, the figure for this fiscal year is notably lower compared to the corresponding period in the previous year. Market borrowings by the government have contracted by an estimated 7% during the Year-To-Date of FY24, amounting to Rs 9.6 trillion, a decrease from the comparable period last year.
Tax and non-tax receipts have demonstrated an increase this fiscal year, notwithstanding divestment receipts, which currently stand at 17% of the targeted Rs 0.51 trillion for FY24. According to HSBC, the remarkable tax buoyancy has been instrumental in aligning with central targets. The fiscal deficit is anticipated to align with the budgeted 5.9% of GDP in FY24. HSBC also foresees rapid tax growth in FY25, assuming a tax buoyancy of 1.1. Additionally, expectations include normalization in current expenditure post-elections and sustained elevated capital expenditure momentum, leading to a projected fiscal deficit of 5.3% in FY25. This signals the government's commitment to the fiscal consolidation path, targeting a deficit of 4.5% by FY26.
Centrum's strategy team echoes confidence in the government comfortably meeting the fiscal deficit target through a combination of tax receipts, transfers from the Reserve Bank of India, and contributions from public sector enterprises.
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