Govt to improve quality spending, cut fiscal deficit to 4.5% of GDP in FY26: FinMin Report

The central government will continue to focus on improving quality spending, strengthening the social security net and bringing down the fiscal deficit to 4.5 per cent of the gross domestic product (GDP) in 2025-26 (FY26). According to a report released by the Finance Ministry, the Centre is committed to pursuing the glide path of fiscal consolidation as announced in the Budget for FY 2021-22 and to attain a level of fiscal deficit lower than 4.5 per cent of GDP by FY 2025-26.

Finance Minister Nirmala Sitharaman will present the Budget for 2025-26 in Parliament on February 1, 2025. According to finance ministry statements on the half-yearly review of the trends in receipts and expenditure and deviation in meeting the government's obligations under the Fiscal Responsibility and Budget Management Act, 2003. The statements were tabled in the Lok Sabha last week.

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"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," said the finance ministry.

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 global economy's vagaries. 

"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.

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The total expenditure was estimated at about ₹48.21 lakh crore, of which expenditure on revenue account and capital account were estimated at about ₹37.09 lakh crore and ₹11.11 lakh crore, respectively, as per the Budget Estimate (BE) of 2024-25. As against total expenditure of ₹48.21 lakh crore, the expenditure in the first half of FY25 was ₹21.11 lakh crore, or about 43.8 per cent of BE.

Considering the grant to create capital assets, the effective capital expenditure (Capex) was projected at ₹15.02 lakh crore. The gross tax revenue (GTR) was estimated at about ₹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 about ₹32.07 lakh crore. It comprised tax revenue (net to Centre) of about ₹25.83 lakh crore, non-tax revenue of about ₹5.46 lakh crore, and miscellaneous capital receipts of ₹0.78 lakh crore.

With the above estimates of receipts and expenditures, the fiscal deficit was pegged at about ₹16.13 lakh crore in BE 2024-25, or 4.9 per cent of GDP. The fiscal deficit is estimated at ₹4.75 lakh crore in H1 of FY25 or about 29.4 per cent of BE.

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The fiscal deficit was planned to be financed by raising ₹11.13 lakh crore from the market (G-sec T-Bills) and the remaining ₹5 lakh crore from other sources, such as NSSF, State Provident Fund, External debt, drawdown of cash balance, etc.