Budget Watch: FinMin confident of sticking to fiscal deficit of 5.1% of GDP

Finance ministry sources also said that the Budget would stick to the fiscal deficit projection of 5.1 per cent of Gross Domestic Product (GDP) for 2024-25. Image: ShutterstockThe government reported a fiscal surplus in May to the tune of around Rs 1.6 trillion and revenue surplus of around Rs 2 trillion in May, thanks to more than double surplus transfer from the Reserve Bank of India (RBI) over what was pegged for this head and dividend from Public Sector Banks (PSBs) together for 2024-25 in the interim Budget, robust tax revenues and capex compression.At the outset, this showed that the government is in a comfortable position to retain or better fiscal deficit targets given in the interim Budget for 2024-25. Finance ministry sources also said that the Budget would stick to the fiscal deficit projection of 5.1 per cent of Gross Domestic Product (GDP) for 2024-25 as was pegged in the interim Budget. They further said that the glide path, which entails narrowing the fiscal deficit further to 4.5 per cent of GDP during the next financial year, would also be retained. Click here to connect with us on WhatsAppALSO READ: Budget Watch: Govt may announce new 5G initiatives, focus on R&D for 6G However, this path may not be as easy for the government to tread. This is so because the Modi government 3.0 is facing pulls and pressures from coalition partners for state-specific packages as well as within the party to address the vulnerable sections of the society some of whom shifted loyalties to the Opposition at the hustings.The government has around Rs 1.09 trillion more from RBI transfer compared to slightly over Rs 1.02 trillion pegged from two heads cited above in the interim Budget for the current financial year. Dividends from PSBs are yet to come.Tax revenues, net of devolution to the states, was only Rs 2,600 crore higher during 2023-24 than what was pegged in the revised estimates in the interim Budget. However, the first two-three months of tax collections showed that

there could be a bit of upward revision in the Budget estimates for 2024-25 in the full Union Budget than what was pegged in the interim Budget.ICRA Chief Economist Aditi Nayar anticipates an upside in tax and non-tax receipts of Rs. 1.2 trillion relative to the amount pencilled into the interim Budget estimates For FY25. Surplus transfer from RBI and dividend from PSBs form part of non-tax receipts. However, the government is expected to tweak the new tax regime for personal income tax which would hit the exchequer slightly."This could be split roughly equally, towards enhancing expendi

tures and compressing the fiscal deficit below the 5.1% of GDP that was pencilled in the Interim Budget for FY2025," she said.Radhika Rao, executive director and senior economist at DBS Bank, says political compulsions are unlikely to derail the ongoing fiscal consolidation agenda."The revenue buffer leaves the door open for the government to improve on the interim Budget\'s target of 5.1 per cent of GDP by 10-20 basis points with the rest likely to be channelised towards social support schemes," she said.If Nayar\'s calculations are taken into consideration, the government has a buffer of Rs 1.2 trillion to give away to the demand of financial packages for Bihar and Andhra, spending extra on vulnerable sections and Agniveer.All these have to be contained within Rs 1.2 trillion or the government has to compress capex in the hope that private investments will revive. Although Andhra Pradesh and Bihar are demanding special category status, the government is averse to the idea since the category no longer exists. However, the government may prepare special financial packages for the two states and announce them in the Budget. Then, there are demands of increasing work days under MNREGA to 200 days from the existing 100 days and hiking wages under the scheme, increasing the number of years for Agniveer from the current four years for 75 per cent of the recruits and a one-time payment from the current Rs 11.71 lakh, increase in sum given to farmers under PM-Kisan from Rs 6,000 a year etc.In fact, the government cut capex by 14.4 per cent at Rs 1.43 trillion in the first two months of 2024-25, probably due to operation of the model code of conduct during General Elections.After the 2024 Lok Sabha results last month, an analyst at Moody\'s Ratings had said the narrower margin of victory for Modi\'s alliance will forestall reforms that could have potentially facilitated aggressive fiscal consolidation."It looks like the prospects for even more aggressive consolidation are not as bright as they were prior to the election results," Christian de Guzman, senior vice president, Sovereign Risk Group, had told Reuters.The Bharatiya Janata Party (BJP) won 240 seats, 32 short of the majority mark. However, the party-led National Democratic Alliance got 293 seats with Janata Dal (United) and Telugu Desam Party (TDP) pitching in crucial 2