New Delhi (India): The central government’s fiscal deficit for FY25 is projected to be 4.8% of GDP, slightly below the budgeted estimate of 4.9%, according to a report by CareEdge Ratings. This marginal improvement is attributed to robust tax collections, despite some shortfalls in certain areas.
The report stated, “Overall, we project the fiscal deficit at 4.8% of GDP, marginally lower than the budgeted 4.9%.” It highlighted strong performance in gross tax revenue, particularly from goods and services tax (GST) and income tax collections, which have helped offset weaker performances in corporate tax and union excise duties.
Challenges in Capital Expenditure
However, the report noted that the Centre’s capital expenditure (capex) is expected to fall short of its target by Rs 1.5 trillion, which could potentially affect long-term infrastructure growth. Revenue expenditure is also likely to exceed the budget estimates due to additional allocations made under the first supplementary grant.
Despite these challenges, the report pointed out that the strong performance in GST and income tax collections has partially offset the weakness in corporate tax and excise duty collections.
Growth Outlook
Nominal GDP growth is projected to be 9.9%, lower than the budgeted 10.5%, although India’s real GDP growth is expected to remain healthy at 6.5% for FY25. The report also predicts a moderation in Consumer Price Index (CPI) inflation, driven by the stabilization of food prices.
External Sector and Export Performance
On the external front, India’s export performance is expected to be mixed. Merchandise exports are projected to grow modestly by 2.5% in FY25, due to global uncertainties affecting demand. However, services exports are expected to grow robustly by 13%, bolstered by sectors such as IT and professional services. Additionally, remittances are anticipated to remain strong, providing further support to the current account balance.
India’s current account deficit (CAD) is projected to remain manageable at 0.9% of GDP in FY25, reflecting resilience in the external sector.
Conclusion
The report provides a balanced view of the Indian economy, with positive trends in tax revenue and services exports helping to mitigate some of the challenges in capital expenditure and merchandise trade. The government’s efforts toward fiscal consolidation are expected to keep the fiscal deficit trajectory on track.