Bumper RBI bonus trims April-May fiscal deficit to 3% of FY25 target

Fiscal deficit at Rs 50,615 crore in April-May FY25, according to CGA data

A fiscal surplus of Rs 1.6 trillion in May due to the Reserve Bank of India’s (RBI’s) record dividend transfer narrowed the Centre’s fiscal deficit for the first two months of 2024-25 to Rs 0.5 trillion or 3 per cent of the full-year estimate, according to the data released by the Controller General of Accounts (CGA) on Friday. 

The fiscal deficit in the same period last year was 11.8 per cent of the budget estimates.

Higher tax revenue and the RBI dividend transfer of Rs 2.1 trillion have kept the revenue receipts high at 19 per cent of the budgeted estimates for April-May FY25 period, compared to around 15 per cent in the corresponding period last year. 

“The revenue upside seen from non-tax, and to a smaller extent, tax receipts suggests headroom to both boost expenditure and target a faster fiscal consolidation than what was pencilled in to the Interim Budget for FY2025,” Aditi Nayar, Chief Economist, ICRA said. 

Fiscal deficit, the gap between expenditure and revenue, stood at Rs 16.54 trillion in FY24, against the budgetary target of Rs 17.86 trillion, according to government data.

Aided by higher than expected tax receipts, the Union government contained the fiscal deficit at 5.6 per cent of the gross domestic product (GDP) in 2023-24 (FY24), compared with the Revised Estimates of 5.8 per cent. 

Capital expenditure for April-May stood at 12.9 per cent of the budget estimate of Rs 11.1 trillion against 16.8 per cent in the corresponding period last year, CGA data showed.

Due to the general elections, government spending for this period was impacted.  

The Interim Budget presented in February had revised the fiscal gap estimate from the initial 5.9 per cent of GDP to 5.8 per cent for FY24. A fiscal deficit arises when government spending exceeds its revenue.

The windfall arising from the RBI dividend is likely to provide additional leeway of Rs 1 trillion to the government for enhanced expenditures or a sharper fiscal consolidation, according to experts. 

The Centre has set an FY25 fiscal deficit target of 5.1 per cent, or Rs 16.85 trillion, in order to achieve a fiscal deficit of 4.5 per cent of GDP by FY26.

S&P Global ratings had recently said that it will closely observe India’s fiscal consolidation path for the next two years and could give a ratings upgrade if the government stays committed to the fiscal glide path.