Government Targets Fiscal Deficit Reduction to 4.5% of GDP by 2025-26
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New Delhi, Dec 25 (NationPress) The government will persist in its efforts to enhance quality spending, fortify the social security framework, and aim to reduce the fiscal deficit to 4.5 percent of the GDP for the financial year 2025-2026, as per a statement released by the Finance Ministry.
Finance Minister Nirmala Sitharaman is anticipated to uphold the administration’s strategy of increasing funding for substantial infrastructure projects and social welfare initiatives for the underprivileged, while maintaining control over the fiscal deficit when she unveils the Union Budget for 2025-26 in Parliament on February 1.
The government remains committed to adhering to its fiscal consolidation strategy, which aims to reduce the fiscal deficit to 4.5 percent of GDP by the financial year 2025-26, as indicated in the Finance Ministry’s statements regarding the semi-annual review of revenue and expenditure trends.
"The focus will be on enhancing the quality of public spending, while simultaneously reinforcing the social security framework for the less fortunate. This methodology is expected to further strengthen the nation’s macro-economic fundamentals and ensure overall financial stability," the review highlighted.
As per the statements, the Budget 2024-25 was tabled against the backdrop of global uncertainties stemming from conflicts in Europe and the Middle East. India’s robust macroeconomic fundamentals have helped shield the nation from the upheavals affecting the global economy.
"It has also enabled the country to pursue growth alongside fiscal consolidation. Consequently, India retains its esteemed position as one of the world’s fastest-growing economies. However, growth risks continue to persist," it noted.
Total planned expenditure was projected at Rs 48.21 lakh crore, with revenue and capital account spending estimated at Rs 37.09 lakh crore and Rs 11.11 lakh crore, respectively, as outlined in the Budget Estimate for 2024-25. In the first half of the fiscal year 2025, total expenditure amounted to Rs 21.11 lakh crore, approximately 43.8 percent of the budget estimate.
When factoring in the grants for capital asset creation, the effective capital expenditure was anticipated to be Rs 15.02 lakh crore. Gross tax revenue was estimated at Rs 38.40 lakh crore, with an implied tax-to-GDP ratio of 11.8 percent.
Total non-debt receipts for the Central government were projected at Rs 32.07 lakh crore, encompassing net tax revenue 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 expenditures, the fiscal deficit was estimated at Rs 16.13 lakh crore in the Budget Estimate for 2024-25, equating to 4.9 percent of the GDP. In the first half of 2024-25, the fiscal deficit is projected at Rs 4.75 lakh crore, or roughly 29.4 percent of the budget estimate.
India’s net direct tax collections, which include corporate and personal income tax, surged by an impressive 15.4 percent to Rs 12.1 lakh crore from April 1 to November 10 during the current financial year, according to the latest data from the Central Board of Direct Taxes (CBDT).
Furthermore, there has been substantial growth in GST collections driven by increasing economic activity.
The increase in tax collections provides the government with additional funds, helping to manage the fiscal deficit and reinforcing the economy's macroeconomic fundamentals. A lower fiscal deficit indicates reduced borrowing requirements for the government, allowing more capital to remain in the banking system for large corporations to borrow and invest. This cycle promotes a higher economic growth rate and generates more job opportunities.
Additionally, a reduced fiscal deficit also aids in keeping the inflation rate under control, contributing to overall economic stability.
