The Centre’s fiscal deficit in FY25 may be slightly lower than the budgeted 4.9% of GDP.

Amid tough economic conditions, the Center is likely to get some cheer for its fiscal management as its fiscal deficit is seen as little better than the 4.9% of GDP budgeted for the current fiscal year 2024-25. This position is also likely to help maintain the fiscal deficit target for 2025-26 at an ambitious level of 4.3%.

According to sources, the performance of tax collection, especially GST, has been good in the current financial year, while direct tax collection has also been strong, despite a slight slowdown in the corporate tax clean-up process. Income tax collections are expected to at least exceed the budgeted target of Rs 11.87 lakh crore in the financial year.

Meanwhile, the Treasury is also likely to get some savings on the spending side, with capital expenditure remaining subdued this fiscal due to the general elections and Union Budget presentation in July.

For FY2026, the Center is likely to continue fiscal consolidation, which also gives a positive signal to both domestic and foreign investors about the stability of the economy. “There will be no reduction in any expenditure and budget estimates will, as always, be reasonable and achievable,” a source close to the development said.

Accordingly, the fiscal deficit target is likely to be in the range of 4.3% or so, with the final decision to be taken closer to the Union Budget presentation in February.

According to official data, the Centre’s fiscal deficit between April and October 2024 was 46.5% of the full-year estimate of Rs 16.13 lakh crore. Net tax revenue has reached 50.5% of the budget estimate in the financial year while capital expenditure has reached 42% of the estimated budget of Rs 11.1 lakh crore for the current financial year. More updated data for the period between April and November 2024 will be released on December 31.

However, analysts and experts also believe that there will be further improvement in the financial performance for FY25.

“Total tax collections grew by a healthy 10.8% during April-October 2024, supported by a 20% expansion in income tax collections. ICRA believes that income tax collections may exceed the FY2025 RBE of Rs. 2020,” said Aditi Nayar, Chief Economist. 11.5 lakh crore, unless significant recoveries are released in the latter part of the financial year, even if “Corporate tax flows could have been in line with target or slightly below target.” Recent note.

On the expenditure side, ICRA expects the GoI’s capex target to be Rs. 11.1 trillion will be missed for FY2025 by a margin of at least Rs. 1 lakh crore, which would make up for any shortfall in disinvestment and taxes. In addition, the modest net cash disbursement under the first supplementary request for grants is likely to be offset by spending savings in other departments and ministries, and is unlikely to pose a fiscal deficit risk. “Therefore, we expect the fiscal deficit to lag slightly behind the RBI for FY25 of Rs. 16.1 trillion or 4.9% of GDP,” she said.

CareEdge Ratings said it expects the fiscal deficit to be 4.8% of GDP in FY25, marginally lower than the 4.9% budgeted with expectations of lower nominal GDP growth (compared to BE). “With capital expenditure lower than budgeted and marginally higher revenue expenditure, we expect the Centre’s fiscal deficit to reach Rs 15.6 lakh crore in FY25,” it said in a recent note.