India's April-October fiscal deficit narrows to ₹7.51 trillion, driven by RBI dividend and lower capex

India’s fiscal deficit for the April-October period stood at   ₹7.51 trillion, 46.5% of the estimate for 2024-25, according to the data released by the Controller General of Accounts (CGA) on Friday.

The latest figure is lower than  ₹8.04 trillion a year ago due to the Reserve Bank of India (RBI) dividend and subdued government capex during the first quarter amid the general elections, though tax receipts remained flat.

The central government's fiscal deficit target is 4.9% of the gross domestic product (GDP) for 2024-25 (FY25), as announced by finance minister Nirmala Sitharaman in the Union Budget 2024-25 against 5.6% in 2023-24, which was lower than the revised estimates of 5.8%.

Receipts and expenditure

During the April-October period, net tax receipts stood at   ₹13.05 trillion, or 50.5% of the target set in the annual budget in July, against   ₹13.02 trillion in the same period of the previous year, the CGA data showed.

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Total government expenditure during the period was   ₹24.74 trillion, or 51.3% of the annual target, against   ₹23.94 trillion in the year-ago period, indicating a pick-up in expenditure in Q2FY25 following a slowdown in the previous quarter.

Government capex (capital expenditure) stood at   ₹4.67 trillion during the period, or 42% of the annual estimate for 2024-25, from   ₹5.47 trillion reported during the year-ago period, or 54.7% of the annual estimates for 2023-24.

During the April-October period, while non-tax revenue stood at   ₹3.99 trillion or 73.2% of the annual budget estimates, total revenue receipts stood at   ₹17.23 trillion, or 53.7% of the estimates for 2024-25.

Non-tax revenue stood at   ₹2.66 trillion, or 88.1% of the budget estimates, and total revenue receipts stood at  ₹15.91 trillion, or 58.6% of the estimates for the corresponding period of the previous fiscal.

Expert take

Experts said India's fiscal deficit narrowed to ₹7.5 trillion (46.5% of the 2024-25 Revised Budget Estimate) during April-October FY25, down from ₹8 trillion in the same period of FY24. This was driven by higher dividend payouts from the RBI and a year-on-year decline in capital expenditures.

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“After the 10.3% annual growth in Q2FY25, the Centre's capex recorded an unexpected about 8% annual contraction in October 2024, possibly dampened by the ongoing festive season. To meet the FY25RE (revised estimates), the government needs to incur a capex of about ₹1.3 trillion per month during November-March FY25, which entails a daunting annual expansion of about 61%,” said Aditi Nayar, chief economist and head of research and outreach at Icra Ltd.

“We are apprehensive that the capex target of ₹11.1 trillion for FY25 will now be missed by a margin of at least ₹1 trillion,” Nayar added.

Unprecedented dividend payout

The Indian government’s tighter fiscal deficit target of 4.9% of GDP, outlined in July’s annual budget, is bolstered by an unprecedented dividend payout from the RBI.

The  ₹2.11 trillion disbursed by the central bank marks a 141% increase over last year’s dividend and provides a crucial buffer for 2024-25, offsetting potential shortfalls in tax revenue or hikes in public spending.

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This substantial payout aids the government’s adherence to its fiscal consolidation path to lower the deficit to 4.5% by 2025-26.