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Informist, Tuesday, Jan. 7, 2025

NEW DELHI – Weaker-than-anticipated economic growth in 2024-25 (Apr-Mar) is set to reduce the amount of fiscal room available to the Indian government by 10 basis points, according to GDP data released by the statistics ministry on Tuesday.

As per the Ministry of Statistics and Programme Implementation's first advance estimate of GDP for the current financial year, India's nominal growth is seen at 9.7%, well below the 10.5% the finance ministry had assumed in the Union Budget. This lower growth will translate into a higher fiscal deficit ratio as a percentage of GDP.

Assuming a nominal GDP growth of 10.5%, the Centre targeted a fiscal deficit of 4.9% of GDP for FY25. In absolute terms, the budgeted fiscal deficit was INR 16.13 trillion. Assuming the same budgeted number in absolute terms, the fiscal deficit as a ratio of GDP will be 5.0%, given that the first advance estimate of GDP at INR 324.11 trillion, is INR 2.26 trillion lower than what the government had assumed in the Budget.

To be sure, economists are of the opinion that the Centre's fiscal deficit will likely be lower than the Budget estimate. As per the latest data on the government's finances released last week, the fiscal deficit in the first eight months of FY25 was 52.5% of the full-year target, with capital expenditure lagging badly.

The Indian government has set a record capex target of INR 11.11 trillion for FY25. In Apr-Nov, it had spent only INR 5.14 trillion for the same, amounting to just 46.2% of the full-year estimate. A shortfall on the capex front is seen dragging down overall government expenditure and keeping the fiscal deficit below 4.9% of GDP.

"While capital spending saw a pick-up in November, it remained lower by 12.3% till November. While we anticipate an uptick for last four months, (capex) is likely to fall short of the annual target, by around INR 750 billion," Garima Kapoor, economist at Elara Securities, said in a note Wednesday.

"In line with this, we project a fiscal deficit of 4.8% vs 4.9% budgeted driven by healthy revenue collections amidst constrained capital spending even as nominal GDP growth is expected to be lower than 10.5% projected in the budget," Kapoor had said.  End

Reported by Siddharth Upasani

Edited by Saji George Titus

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