Despite the Centre’s fiscal deficit reaching just 50.7% of its full-year target by end November 2023, experts warn that it might slightly surpass the full-year target of 5.9% of the GDP. Analysts suggest that the fiscal deficit for FY24 could hover around 6% due to lower-than-anticipated nominal GDP growth.

Devendra Kumar Pant, Chief Economist & Senior Director – Public Finance at India Ratings and Research, stated, “Government is likely to achieve its FY24 fiscal deficit target in level terms; however, slower nominal GDP growth may push fiscal deficit in ratio term to 6% of GDP.”

The pressure on the FY24 fiscal deficit arises from challenges in disinvestment and increased revenue expenditure. India Ratings estimates that the union government’s revenue receipts in FY24 are likely to be Rs 1.9 lakh crore, with tax revenue at Rs 1.2 lakh crore and non-tax revenue at 0.7 lakh crore. While higher than the Budget estimate, the revenue expenditure is expected to surpass this by Rs 2.1 lakh crore.

ICRA also expresses concern that a lower nominal GDP than projected in the Union Budget could result in the fiscal deficit reaching 6% of GDP. Aditi Nayar, Chief Economist and Head of Research and Outreach at ICRA Ltd, asserts, “In general, ICRA does not anticipate meeting the fiscal deficit target of Rs 17.9 lakh crore for FY2024 to be breached.”

ICRA anticipates direct taxes exceeding the FY2024 Budget Estimate (BE) by around Rs 0.85 lakh crore, but this might be offset by lower-than-expected union excise duty collections. The agency expects a shortfall in disinvestment proceeds but believes it will be balanced by net tax revenues exceeding the FY2024 BE by Rs 0.3-0.4 lakh crore.

Data from the Comptroller General of Accounts reveals that the Centre’s fiscal deficit reached Rs 9,06,584 crore between April and November 2023, representing 50.7% of the Budget estimate. While direct tax collections remained robust, non-debt capital receipts and disinvestment proceeds lagged behind expectations.

Despite total expenditure reaching nearly 59% of the Budget Estimate, concerns arise as capital expenditure slows down. With capital expenditure standing at 58.5% of the BE of Rs 10 lakh crore, analysts fear a further slowdown, especially in the run-up to the General Elections, as the model code of conduct might impact capex targets.

In conclusion, the lower nominal GDP growth raises caution about the potential breach of the fiscal deficit target, prompting close monitoring of economic indicators in the coming months.

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