India’s Fiscal Deficit Narrows to 26.8% of Full-Year Target in First Four Months

India’s fiscal deficit for the first four months of the current fiscal year stood at ₹4.55 lakh crore, accounting for 26.8 per cent of the full-year target at the end of July. Data released by the Controller General of Accounts (CGA) shows that the deficit was lower compared to the corresponding period of the previous financial year, when it stood at 29.9 per cent of the Budget Estimates.

While presenting the Budget, Finance Minister Nirmala Sitharaman had pegged the fiscal deficit target at 4.3 per cent of the GDP, or ₹16.96 lakh crore, maintaining the government's focus on its fiscal consolidation path and keeping the Budget gap under control.

According to the CGA, total revenue receipts stood at ₹12,67,573 crore up to July. Of this, net tax revenue was approximately ₹844,560 crore, representing 29.5 per cent of the corresponding Budget Estimates. In the same period of the previous fiscal year, net tax revenue was lower at 23.3 per cent of that year's estimate.

Non-tax revenue reached ₹4.23 lakh crore, bolstered by dividends from public sector enterprises and the Reserve Bank of India, alongside spectrum-related income and various fees. The RBI approved a dividend of ₹2.87 lakh crore to the Central government, up from ₹2.69 lakh crore in the previous year, which contributed to narrowing the fiscal deficit.

The revenue deficit was recorded at ₹43,645 crore, or 7.4 per cent of the fiscal year's Budget target. Total expenditure during the first four months reached approximately ₹17.61 lakh crore, or 32.9 per cent of the Budget Estimates, compared to 30.9 per cent in the year-ago period.

During the period, the Centre transferred ₹3,72,354 crore to State governments as a devolution of their share of taxes, which is ₹56,190 crore lower than the previous year due to timing differences in the number of tranches shared. Aditi Nayar, Chief Economist at ICRA, noted that the moderation in the fiscal deficit was entirely driven by a sharp narrowing in the revenue deficit, even as capital expenditure surged by about 30 per cent.

ICRA estimates suggest the fiscal deficit could potentially overshoot the full-year Budget Estimates by about ₹0.9 to ₹1.0 trillion, though this variance could be absorbed by expenditure savings, which amounted to ₹1.6 to ₹1.7 trillion during the previous fiscal year.

"The narrowing of India's fiscal deficit to 26.8% of the full-year target reflects steady macroeconomic management, supported by strong non-tax revenues and healthy direct tax collections. For businesses and entrepreneurs within the Indian ecosystem, disciplined fiscal consolidation and continued capital expenditure by the government create a stable economic environment and predictable growth conditions." — Dr. Shishir Gupta, Founder & CEO, StartupLanes