New Delhi: India’s fiscal deficit for April-January FY2025 widened to Rs 11.7 trillion, up from Rs 11.0 trillion in the same period a year earlier, reaching nearly 75 per cent of the revised full-year target, according to official data. Despite the increase, higher nominal GDP estimates could keep the fiscal deficit at 4.7 per cent of GDP, slightly below the revised projection of 4.8 per cent, according to an ICRA report.
The expansion in the fiscal deficit was largely due to moderate tax revenue growth and increased government spending. Net tax revenues edged up by just 1.3 per cent year-on-year, impacted by the early distribution of tax devolution to states. In contrast, non-tax revenues saw a sharp 38 per cent rise, mainly from higher dividends and profits. Gross tax revenues grew by 10.3 per cent, driven by a 22 per cent jump in income tax collections, although corporate tax receipts declined slightly by 0.6 per cent.
ICRA highlighted the challenge in achieving the revised revenue target. “To meet the estimates, gross tax collections must expand by 14 per cent in the last two months of the fiscal year, requiring corporate tax revenues to rise by 47 per cent—an ambitious goal,” the agency noted.
On the expenditure front, government outlays increased by 6.4 per cent between April and January. Revenue expenditure rose by 6.8 per cent, while capital expenditure saw a 5.0 per cent increase. In January alone, revenue expenditure grew by 5.1 per cent, and capital expenditure surged by 51 per cent, which could help sustain economic momentum in the final quarter.
However, reaching the full-year capital expenditure target of Rs 10.2 trillion could be difficult. “A 15 per cent year-on-year rise in spending is needed over the next two months to meet this target, which may be challenging,” an ICRA analyst remarked.
A shortfall in disinvestment receipts is another factor in fiscal planning. Against the revised target of Rs 330 billion for FY2025, actual proceeds could fall short by Rs 100-150 billion. However, this may be offset by lower-than-expected capital expenditure, keeping the overall fiscal deficit within projections.
The National Statistical Office (NSO) has revised India’s nominal GDP estimate to Rs 331.0 trillion from Rs 324.1 trillion, which could help contain the fiscal deficit at 4.7 per cent of GDP.
Meanwhile, recent monetary policy measures, including a 25 basis point rate cut by the Reserve Bank of India in February 2025 and expectations of another cut in April, are anticipated to ease borrowing costs and support fiscal management, ICRA stated.