Interim Budget May Peg FY25 Fiscal Deficit At 5.3%, Says ICRA

Rating agency ICRA expects the government to peg the fiscal deficit target at 5.3% of GDP and keep disinvestment proceeds estimates to below Rs 50,000 crore in the interim budget for 2024-25.

The fiscal deficit, which is the indication of government borrowing to bridge the gap between total revenue and expenditure, is estimated at 6% of GDP in the current financial year, a tad higher than 5.9% projected in the Budget presented in February, last year.

However, the direct tax and Central GST collections are expected to exceed the Budget estimates for 2023-24 by Rs 1 lakh crore and Rs 10,000 crore, respectively, said 'ICRA's Interim Budget 2024-25 Expectations' report on Thursday.

Finance Minister Nirmala Sitharaman will present the interim budget on Feb. 1 in the Lok Sabha.

ICRA said it is expecting the Centre's capex to undershoot the Budget Estimate of Rs 10 lakh crore by Rs 75,000 crore, implying a robust year-on-year growth of 26%.

This growth rate is, however, lower than the required growth as per Budget estimates of 35.9% over last fiscal.

The capex has averaged at Rs 73,200 crore/month, lower than the required monthly average of Rs 83,400 crore to meet the budgeted target of Rs 10 lakh crore.

ICRA apprehends that the momentum of capex and execution of projects may slow down in early 2024 prior to the general elections, resulting in the FY24 capex target being missed.

On the disinvestment target, ICRA said given the uncertainties involved in market transactions, it will be prudent to set a moderate target of sub-Rs 50,000 crore for FY25, instead of a higher aim that may disrupt the budget math if there is a large shortfall in such receipts by the end of the fiscal.

"Amid delay in execution of some large disinvestment plans, a target of sub-Rs 50,000 crore would be prudent for FY25," ICRA said.

In the current fiscal, the government has so far mopped up over Rs 10,000 crore from CPSE disinvestment, substantially below the Rs 51,000 crore estimated for the full fiscal.

The report further said the fiscal deficit in 2023-24 may not overshoot the budget estimates of Rs 17.9 lakh crore in absolute terms but as a percentage of GDP it will be a tad higher at 6% because the size of nominal GDP in the fiscal is projected to be lower the budget calculations.

ICRA expects the GoI to target a fiscal deficit of 5.3% of GDP in FY25, midway through the expected print of 6 per cent in FY24 and the medium-term target of 4.5% for FY26.

This would entail an absolute fiscal deficit of Rs 17.1 trillion in FY25, a welcome decline from the Rs 17.9 trillion budgeted by the central government.

"We believe that a higher amount of capex vis-à-vis our expectation of Rs 10.2 trillion for FY25 would impinge on the GoI's ability to bridge half the required consolidation in the coming fiscal, thereby making the task of attaining the medium-term target set for FY26 even more challenging," ICRA said.