Govt aims to cut fiscal deficit to 4.5% of GDP in 2025-26

New Delhi, Dec 25: The government will continue its focus on improving quality spending, strengthening the social security net and reducing the fiscal deficit to 4.5 per cent of the GDP in the financial year 2025-2026, according to a Finance Ministry statement.

Finance Minister Nirmala Sitharaman is expected to continue with the government’s position of increasing expenditure on big-ticket infrastructure projects and social welfare schemes for the poor while keeping the fiscal deficit in check when she presents the Union Budget for 2025-26 in Parliament on February 1.

The government is committed to pursuing the glide path of fiscal consolidation which aims to lower the fiscal deficit to 4.5 per cent of GDP by financial year 2025-26, according to Finance Ministry statements on the half-yearly review of the trends in receipts and expenditure.

"The thrust will be on improving the quality of public spending, while at the same time, strengthening the social security net for the poor and needy. This approach would help further strengthen the nation's macro-economic fundamentals and ensure overall financial stability," the review said.

According to the statements, the Budget 2024-25 was presented against the backdrop of global uncertainties caused by the wars in Europe and the Middle East. India's sound macroeconomic fundamentals have cushioned the country from the vagaries afflicting the global economy.

"It has also helped the nation pursue growth with fiscal consolidation. As a result, India retains its pride of place as one of the fastest-growing economies in the world. However, risks to growth still remain," it said.

Total expenditure was estimated at Rs 48.21 lakh crore, of which, expenditure on the revenue account and capital account were estimated at Rs 37.09 lakh crore and Rs 11.11 lakh crore, respectively, as per the Budget Estimate for 2024-25. As against the total expenditure of Rs 48.21 lakh crore, the expenditure in the first half of fiscal 2025 was Rs 21.11 lakh crore or about 43.8 per cent of BE.

Taking into account the grant for the creation of capital assets, the effective capital expenditure was projected at Rs 15.02 lakh crore. Gross Tax Revenue was estimated at Rs 38.40 lakh crore with an implied tax-GDP ratio of 11.8 per cent.

Total non-debt receipt of the Centre was estimated at Rs 32.07 lakh crore. It comprised tax revenue (net to Centre) of Rs 25.83 lakh crore, non-tax revenue of Rs 5.46 lakh crore, and miscellaneous capital receipts of Rs 0.78 lakh crore.

With these estimates of receipts and expenditure, the fiscal deficit was pegged at Rs 16.13 lakh crore in BE 2024-25 or 4.9 per cent of the GDP. In the first half of 20234-25, the fiscal deficit is estimated at Rs 4.75 lakh crore, or about 29.4 per cent of BE.

India’s net direct tax collections, comprising corporate tax and personal income tax, shot up by a robust 15.4 per cent to Rs 12.1 lakh crore, from April 1 to November 10 during the current financial year, according to the latest figures released by the Central Board of Direct Taxes (CBDT). Similarly, there has been a robust growth in GST collections on the back of rising economic activity.

The buoyancy in tax collections places more funds in the government’s coffers and will help to control the fiscal deficit which bolsters the macroeconomic fundamentals of the economy. A lower fiscal deficit means the government has to borrow less which leaves more money in the banking system for big companies to borrow and invest. This in turn leads to a higher economic growth rate and the creation of more jobs.