Government Meets Fiscal Deficit Target of 4.8% of GDP for FY25 Amid Revenue Shortfalls

The Government of India achieved its fiscal deficit goal of 4.8% of GDP for financial year 2024-25 as per preliminary data from the Controller General of Accounts. Fiscal responsibility was upheld despite total revenue being lower than expected, mainly because of missing capital receipts and less tax money. Total spending and total revenue by the government were roughly equal to 97.8% of what was set in the revised budget. The government plans to gradually cut the deficit to 4.4% of the GDP in the financial year 2025-2026.

Context

• Government meets  fiscal deficit goal of 4.8%

  • Despite reduced revenue, India fulfilled the fiscal deficit goal of 4.8% of GDP in FY25.

  • Income tax collections were down by 6%, but corporate tax collections came in above the targets.

Key Points

• Fiscal Deficit and Expenditure

  • For FY25, the fiscal deficit came to ₹15.77 lakh crore or 4.8% of GDP.

  • A total of ₹46.55 lakh crore (97.8%) was spent for the year which was slightly greater than the budgeted amount.

  • Total revenue amounted to ₹30.78 lakh crore (97.8% of the estimated figure).

• Revenue Shortfalls:

  • Money received from miscellaneous capital resources (such as disposals from investments) added up to ₹17,202 crore, sharing just about half (52.1%) of the target for the year.

  • Disinvestment Earnings: ₹10,131.32 crore

  • Revenue from income taxes:  ₹11.83 lakh crore which is about 6% less than what was forecasted by the government.

  • Corporate Taxes: ₹9.87 lakh crore in corporate taxes which was just 0.7% more than the government estimated.

• Plan for Fiscal Consolidation

  • The Finance Minister aims for the fiscal deficit to decrease again, going down to 4.4% of GDP in FY26.

  • The government is making sure not to raise spending too much above income.

About Fiscal Deficit

What does Fiscal Deficit mean?

• When the government spends more money than it makes, through expenses and revenue (and excluding loans), there is a fiscal deficit. 

• It shows how much debt the government has to incur to pay its bills.

• Simple Definition:

  • Fiscal deficit = Total Expenditure – Total Receipts (excluding borrowings)

Formula of Fiscal Deficit

• Fiscal Deficit = (Revenue Expenditure + Capital Expenditure) – (Revenue Receipts + Recoveries of Loans + Non-Debt Capital Receipts)

Alternate Form (used in budget documents):

• Fiscal Deficit = Total Expenditure – Total Revenue (excluding borrowings)

• It is generally expressed as a percentage of GDP to assess the size of deficit relative to the economy.

Components of Fiscal Deficit

How is Fiscal Deficit Financed?

Formula: Total borrowing = Fiscal deficit for the year

The main framework behind India’s Fiscal Policy

• A Finance Commission is set every 5 years to advise on how to divide funds between the Centre and the States.

• Tax rates and government spending are announced in the Union Budget by the proposal must be approved by the Parliament.

• FRBM Act, 2003 requires the government to act fiscally responsible and to bring down its deficits over time.

• Plans are in place for the fiscal deficit to be 4.4% of GDP in the 2025-26 financial year.

Fiscal Deficit vs Revenue Deficit

Conclusion:

Hitting the fiscal deficit goal even with revenue collection problems shows the government’s determination to keep its fiscal and economic situation stable. There are areas, as shown by lower revenue from income tax, where states should strengthen their plans for bringing in income. Keeping on the consolidation path is key for the economy to grow sustainably and for investors to be confident.

UPSC Prelims Practice Question 

Q.1 Let’s examine the statements given on India’s finances and GDP in the upcoming FY 2024-25:

1. The growth of India’s GDP in FY25 was the biggest since the pandemic year of 2020-21.

2. The 4.8% fiscal deficit was met in spite of revenue not meeting its mark.

3. Growth in the manufacturing sector was greater than growth in construction during Q4 FY25.

4. Cash taken from corporate taxes was not as much as authorities projected in FY25.

Which of the above statements are correct?

A) 2 only
B) 1 and 3 only
C) 2 and 4 only
D) 1, 2 and 3 only

UPSC Mains Practice Question (GS Paper III)

Q. “Even though the fiscal deficit was reached in FY2024–25, slow growth in the Indian economy is caused by imbalances within sectors and difficulties from the world outside.”

Comment on the economic impact the current trend has on India’s economy in the next few years and put forward advice on achieving fiscal stability with the same growth strategy. (250 Words)