India's July Fiscal Deficit Reaches 34% Of Full-Year Target

Capital expenditures and revenue expenditures, along with frontloaded tax devolution to states, pushed the fiscal deficit for the first four months of the financial year 2024 to 34% of the budgetary estimate.

In absolute terms, the fiscal deficit stood at Rs 6.05 lakh crore against the budgeted estimate of Rs 17.86 lakh crore for the current fiscal, according to data released by the Controller General of Accounts on Thursday.

The fiscal deficit had reached only 20.5% in the corresponding period of the previous fiscal. Increased capital expenditures and revenue spends continue to constitute the top governmental outgo.

A higher-than-budgeted dividend surplus of Rs 87,000 crore from the RBI is likely to provide some cushion to meet any undershooting in other revenue streams, including disinvestment or potential overshooting in expenses, relative to budget estimates, such as MGNREGA," ICRA Ltd.'s Chief Economist Aditi Nayar said.

The net tax revenue till July came in at Rs 5.82 lakh crore, 25% of the tax target of Rs 23.3 lakh crore for the fiscal. Non-tax revenue stood at Rs 1.78 lakh crore, or 59.3% of the annual target. Much of the non-tax revenue receipts were buoyed by the Reserve Bank of India's dividend surplus of Rs 87,000 crore that was received in May.

"While net tax revenues contracted by 13%, non-tax revenues doubled on the back of the RBI dividend amid a 16% rise in revenue expenditure and a robust 52% YoY expansion in capex," Nayar said.

The revenue deficit for the period has come in at Rs 3.02 lakh crore, representing 34.7% of the Rs 8.7 lakh crore budgetary estimate. The revenue deficit also rose by Rs 1,18,639 crore in July.

The Union government has also frontloaded devolution of Rs 3.1 lakh crore to the states in the April–July period, compared to Rs 2 lakh crore during the corresponding period last year.

While this shows as a contraction in the current net revenue figures, the frontloading would reduce the deficit pressure in the incoming months, according to Nayar.

To meet the budget estimates, the government has to release Rs 7.1 lakh crore to the states in the next eight months, which is 5% lower than the amount devolved between August and March in the previous fiscal, Nayar said, citing ICRA calculations.

Capital expenditure grew by Rs 38,599 crore in July, totaling Rs 3.17 lakh crore, or 31.7% of the Rs 10 lakh crore capex target for the fiscal. The capex budgeted for the current fiscal is 33% higher in comparison with FY23.

Revenue receipts in July were at Rs 1.72 lakh crore, reaching Rs 7.61 lakh crore, or 28.9% of the year's budget estimate.

Nayar also said that direct taxes remain subdued, offset by healthy growth in collections of the Goods and Services Tax and customs duty. "In July 2023, excise duty emerged from several months of sustained contraction emanating from the cut on cess on petrol and diesel in May 2022, eking out a mild 2% growth."