Fiscal deficit for FY24 could be below budget projection

The Centre aims to narrow fiscal deficit to 5.8% of GDP in FY24, down from 6.4% in FY23

India’s fiscal deficit for financial year 2024 (FY24) will likely be better than the projections made in the Union Budget, and its capital expenditure (capex) plans for the year are on track, a senior government official said on Thursday.

The Centre aims to reduce the fiscal deficit—the difference between the government’s income and expenditure—to 5.8% of gross domestic product (GDP) in FY24, down from 6.4% in the previous financial year.

The fiscal deficit target for FY24 was revised from 5.9% of GDP in the interim budget presented this year.

“We are expected to better the fiscal deficit target for FY24 (from the budgeted figure of 5.8%),” the senior government official said, requesting anonymity.

India’s fiscal deficit during the first 11 months of FY24 stood at ₹15.01 trillion, or 86.5% of the revised annual estimate, according to data from the Controller General of Accounts.

For the corresponding period in the previous year, it was ₹14.54 trillion, or 82.8% of the annual estimate of ₹17.55 trillion for FY23. The budgeted annual estimate for the fiscal deficit, revised in the interim budget on 1 February, was ₹17.35 trillion for FY24.

Despite increased government spending to push growth, the fiscal deficit narrowed due to higher tax receipts and an increase in non-tax revenue. A higher fiscal deficit leads to a higher debt burden and more spending on debt servicing, which can be unhealthy for an economy, potentially devaluing the currency and impacting private investments.

The government's capex target for FY24 is set at ₹9.5 trillion, according to the revised budget allocation, up from the revised estimate of ₹7.28 trillion for FY23.

With ₹8.06 trillion spent during the first 11 months of the current financial year, the Centre has achieved almost 85% of the revised capex target for FY24.

For FY25, the government in its interim budget had raised Central capex allocation to ₹11.11 trillion to develop infrastructure projects.

Government departments have already begun working on the full-year budget, which will be presented in July, after the general election results are announced, the official cited above said.

"We are prepared for any kind of volatility," the official said. “As of now, we don't expect a challenge with oil prices.”

Oil prices rose on Thursday as falling US crude inventories and higher Chinese

imports supported expectations of demand growth in the world's two largest crude-consuming nations. According to Reuters, Brent crude futures for July were up 57 cents at $84.15 a barrel.

"We don't foresee any triggers to the domestic economy due to geopolitical tensions (including the wars in Gaza and Ukraine)," the official said. “The budget has enough cushion to absorb any global volatility.” A finance ministry spokesperson didn't respond to emailed queries. Official data detailing capex numbers for March and FY24, and fiscal deficit data will be released likely by the end of May.

₹17.35 tn Fiscal deficit estimate in interim budget for FY24

₹11.11 tn Central capex allocation made in the interim budget