Budget 2024: Govt lowers fiscal deficit to 5.1% of GDP for FY25

The Centre has lowered the fiscal deficit target for the financial year 2024-25 to 5.1% of the gross domestic product (GDP), said Finance Minister Nirmala Sitharaman while presenting the interim budget or vote-on-account on Thursday, February 1. The fiscal deficit for FY26 has been pegged at 4.5%.

The nominal GDP growth for the next financial year has been pegged at 10.5% against the 11% estimated earlier. The nominal GDP for BE 2024-25 has been projected at ₹3,27,71,808 crore, assuming 10.5% growth over the estimated nominal GDP of ₹2,96,57,745 crore, as per the First Advance Estimates of FY2023-24.

Helped by an improvement in tax buoyancy, the government managed to achieve a fiscal deficit of 5.8% against the budget estimate of 5.9% for the current financial year.

The FM refrained from providing any tax relief or announcing other populist measures before the general elections due in the next couple of months.

As per the Fiscal Responsibility & Budget Management (FRBM) Act, the government plans to achieve a fiscal deficit of 4.5% in 2025–26.

"We continue on the path of fiscal consolidation, as announced in my Budget Speech for 2021–22, to reduce the fiscal deficit below 4.5% by 2025–26. The fiscal deficit in 2024–25 is estimated to be 5.1% of GDP, adhering to that path," she said.

In absolute terms, the fiscal deficit would be ₹16,85,494 crore against ₹17,34,773 crore for the current fiscal. At the same time, the effective revenue deficit would be 1.8% in the current financial year and 0.8% in the next financial year.

Revenue deficit (RD) refers to the excess of revenue expenditure over revenue receipts. Effective Revenue Deficit (ERD) is the difference between a revenue deficit and a grant-in-aid for the creation of capital assets.

To meet the fiscal deficit, the gap between revenue receipt and expenditure, the government raises funds by issuing bonds in the market.

"The gross and net market borrowings through dated securities during 2024-25 are estimated at ₹14.13 lakh and ₹11.75 lakh crore respectively. Both will be less than that in 2023-24.

Now, that the private investments are happening at scale, the lower borrowings by the central government will facilitate larger availability of credit for the private sector," she said.

"The commitment to achieve a 4.6% fiscal deficit in FY26 seemed imperative, given the inclusion of Indian bonds in global indices," said Amar Ambani, Executive Director, YES Securities.

The government has shown fiscal prudence and the low fiscal deficit was a "surprise," said Sandeep Yadav, Head - Fixed Income, DSP Mutual Fund.

“While we were expecting fiscal consolidation, but the budget took all by surprise by showing a low fiscal deficit of 5.1%. Moreover, the assumptions of nominal growth at 10.5% and tax growth at 12% are very realistic, thus leading credence to the deficit numbers. Govt has shown prudence not just in fiscal deficit, but also in allocation of funds. While the overall expenditure has grown by just around 6%, the capital expenditure has grown by 17%,” he said.

Calling the interim budget "judicious," UTI AMC's Chief Investment Officer Vetri Subramaniam said, “This is a judicious interim budget. The degree of fiscal consolidation with a target of 5.1% in FY25 is more than anticipated and is positive for the softening of bond yields. Further, the reiteration of the fiscal target for FY26 gives the bond market medium-term visibility. The consolidation impacts expenditure including capex by the government."