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The gross fiscal deficit as a percentage of the budget estimate moderated in April-September FY25 compared to H1 FY24, supported by robust tax collections, reduced revenue expenditure growth, and lower capital outlays.
This fiscal consolidation offers governments room to ramp up capital expenditure in the second half of FY25, sustaining post-pandemic improvements in expenditure quality and medium-term growth.
States such as Haryana, Punjab, Maharashtra, and Jharkhand announced welfare schemes, including free electricity for agriculture, allowances for unemployed youth, and monetary assistance for women, the article noted.
However, such spending could compromise long-term development priorities.
On the revenue side, the Centre benefitted from higher tax receipts, both direct and indirect, alongside a substantial surplus transfer from the RBI, boosting non-tax revenue. Despite a slowdown in H1 FY25 due to the model code of conduct for elections, government spending is expected to accelerate in the second half of the fiscal year.
Also read: ‘Economy to bounce back in FY25 H2’: RBI bets on rural demand, infras spending
The Centre has achieved over half of its budgeted revenue target in H1 FY25 while containing expenditure to less than 50% of its full-year projection. This positions the government favourably to meet its gross fiscal deficit target of 4.9% of GDP for FY25.
Social sector spending by Indian states has risen sharply, from 5.4% of GDP in 2005-06 to 8.1% in FY25 (Budget Estimates). Prioritisation of education, healthcare, and other critical services has grown, but the article stressed that the effectiveness of this spending depends on achieving tangible outcomes.
The views expressed in the article are those of the authors and do not necessarily represent the RBI’s stance.
(With PTI inputs)
