Revenue Shortfall Overcome: Fiscal Deficit kept at Targeted 4.8%

India’s Fiscal Deficit Analysis for FY25

The fiscal deficit for India in the 2024-25 financial year is recorded at 4.77% of GDP, marginally better than the revised estimate (RE) of 4.84%, despite facing a dip in tax revenues. This favorable outcome was bolstered by robust capital expenditures and an increase in nominal GDP.

Overview of Financial Year 2025

For FY25, the Centre’s fiscal deficit amounted to Rs 15.77 lakh crore, equating to 100.5% of the revised estimate. Although there was a decline in revenue, particularly in tax collections, the fiscal deficit-to-GDP ratio remained managed due to nominal GDP being approximately 2% higher than earlier predictions.

Tax and Capital Expenditures

Net tax receipts totaled Rs 24.99 lakh crore, which falls short by 2.3% of the FY25 RE figure of Rs 25.57 lakh crore. In contrast, capital expenditure exceeded forecasts as it reached Rs 10.52 lakh crore, surpassing the FY25 RE of Rs 10.18 lakh crore, reflecting a substantial growth of 10.8%.

Revenue Expenditure Adjustments

Conversely, revenue expenditure showed signs of moderation, recorded at Rs 36 lakh crore, below the revised estimate of Rs 36.98 lakh crore.

Future Projections for FY26

Moving into FY26, expectations remain stable. ICRA’s chief economist, Aditi Nayar, indicated that even with a projected nominal GDP growth of approximately 9.0%, lower than the budgeted 10.1%, the fiscal deficit-to-GDP ratio could still be maintained at 4.4%. This assumes a slight fiscal slippage of around Rs. 300-350 billion, supported by a larger base.

RBI’s Contribution

The Reserve Bank of India’s (RBI) higher-than-anticipated dividend transfer has contributed additional fiscal leeway of about Rs 70,000 crore, providing a cushion against prevailing global uncertainties. In the first month of FY26, capital expenditures surged by 61% year-on-year, reaching Rs 1.6 lakh crore, significantly above the necessary average monthly target of Rs 0.9 lakh crore.

Monthly Fiscal Performance

Despite this, revenue expenditures exhibited a slight decline, which limited total expenditure growth to around 10% during April. Nonetheless, with a 21% increase in revenue receipts, the fiscal deficit in April 2025 was capped at Rs 1.9 lakh crore, a decrease from Rs 2.1 lakh crore recorded in the same month the previous year.