India: Q1FY25 Fiscal Deficit drops sharply; trend reversal likely from July’24
01st August 2024
Fig 1: Fiscal consolidation glide path to continue,
targeting 4.5% in FY26
9.2% Fiscal deficit in Q1FY25 drops to a multi-year low level of 8.1%
10%
9%
8%
7%
▪ India’s fiscal deficit for Q1FY25 improved to 8.1% of FY25 Budget Estimates (BE). It was way
5.6%
6% 4.9% lower than 25.3% same period last year and more than 60% seen in pre-Covid period (Fig 2).
5%
3.5%
4% ▪ This was led by a combination of strong revenues and lower spending in an election year.
4.5%
3%
2%
▪ The fiscal bounty from the RBI to the tune of Rs 2.1 lakh crores vis-a-vis close to Rs 88,000
1% crore budgeted drove revenues. (Fig 4)
0%
▪ Another factor was the rise in tax buoyancy seen in Q1FY25. The key driver within taxes was
FY 24 P
FY 24 RE
FY 26 Proj.
FY 17
FY 18
FY 19
FY 20
FY 21
FY 22
FY 23
FY 25
FY 25 BE
(I) BE
direct taxes. In specific, income tax showed a growth of c.49.9% YoY in Q1FY25. Meanwhile
growth in indirect taxes like GST were lagging at 10.6%. (Fig 3 & 5)
▪ The sharp slowdown in spending during an election quarter also helped with capex showing a
contraction of 35%. Moreover, revenue spending was also muted at 2.2% which also contributed
Fig 2: Q1 FY25 fiscal deficit as % of budgeted to lowering of fiscal deficit.
slipped to multi-year lows
Quality of spending suffered in an election quarter, yet trend likely to switch post
elections
▪ As noted above, the compulsive revenue expenditure saw muted trends with capex clocking a
contraction of c.35% YoY.
▪ However, going forward the trend is likely to shift in line with the intention shown in the Budget
of continued improvement in quality of fiscal spending.
▪ Capex 3.4% of GDP vs 1.7% pre-covid and revex despite higher allocation kept at 11.4% of GDP
with a muted growth of only 6.2% YoY.
Fig 3: Tax buoyancy in direct taxes far stronger
vis-à-vis indirect taxes in Q1 FY25 Sharp cash build up despite smaller market borrowings and higher cash balances.
Tax components, YoY growth %
▪ FY24 saw a sharper than estimated cash build-up on the back of sharp focus on fiscal
60.0% Direct taxes
Indirect taxes consolidation. As per CGA data, cash balance saw a build up from Rs 1.7 lakh cr March end to
50.0%
40.0% Rs 2.9 lakh cr by June. This trend is also likely to reverse as the government has budgeted for
30.0% drawdown in cash balance to the tune of Rs. 1.40 lakh cr in FY25.
20.0%
10.0% ▪ This was despite market borrowings being nearly one third in Q1 FY25 at Rs 1.4 lakh cr vis-à-
0.0% vis Rs 4.3 lakh cr same period last year. This partly included the reduction in T-bill borrowings
-10.0%
-20.0% calendar in Q1 FY25 by Rs 60,000 cr. (Fig 6)
Corporation
Income tax Central GST Customs Excise
duties ▪ Further, small savings flows also suffered (down by c.33.8% YoY). This is probably attributed to
tax
the hike in deposit rates by banks which is already weighing on collections partly attributable
Q1 FY20 Q1 FY23 Q1 FY24 Q1 FY25 to steep deposit rate hikes by bank and hence the trend is likely to persist in the rest of fiscal.
Source: CGA; Budget documents; UBI
Research FY25 fiscal deficit budgeted to consolidate to 4.9% of GDP amid sustained focus on capex
▪ The headline FY25 fiscal deficit number of 4.9% of GDP was in line with our expectations which
was below market consensus at large. The FY25 Budget saw a “fine balance”, with the Finance
Minister staying committed to the goals of fiscal consolidation and capex while also addressing
competing policy priorities of boosting consumption and job creation (Watch: Post Budget
Fincast)
▪ Finance Minister chose to address financing of lower fiscal deficit (vs 5.1% in Interim Budget)
via T-bills reduction rather than dated securities probably on expectations of strong demand
from FPIs post global EM bond index inclusion.
By: ▪ This choice of reduction in T-Bills borrowing by Rs.1 lakh crore vs FY24 and draw down of
Kanika Pasricha government cash balance to the tune of Rs.1.40 lakh crore provided a strong boost to the
[email protected] shorter end of yield curve.
Jovana Luke George
[email protected] Classification: Public
Data Tables
Fig 4: Lower fiscal deficit in Q1FY25 led by lower expenditure, particularly Capex
Fiscal Numbers (Rs lakh crore)
YoY % of Actuals
Parameter FY23 % of GDP FY24 (Prov) % of GDP FY25 (BE) % of GDP Q1 FY25 (BE)
growth % to FY25 BE
Revenue Receipts 23.8 8.8% 27.3 9.2% 31.3 9.6% 8.3 41.0% 26.5%
Net Tax Revenue 21.0 7.8% 23.3 7.9% 25.8 7.9% 5.5 26.8% 21.3%
Non Tax Revenue 2.9 1.1% 4.0 1.4% 5.5 1.7% 2.8 80.7% 51.3%
Non Debt capital receipts 0.7 0.3% 0.6 0.2% 0.8 0.2% 0.0 -57.8% 5.8%
Total Receipts 24.6 9.1% 27.9 9.4% 32.1 9.8% 8.3 39.2% 26.0%
Revenue expenditure 34.5 12.8% 34.9 11.8% 37.1 11.4% 7.9 2.2% 21.3%
Capex 7.4 2.7% 9.5 3.2% 11.1 3.4% 1.8 -35.0% 16.3%
Total Expenditure 41.9 15.6% 44.4 15.0% 48.2 14.8% 9.7 -7.7% 20.1%
Fiscal Deficit 17.4 6.4% 16.5 5.6% 16.1 4.9% 1.4 8.4%
Fig 5: Lower Q1FY25 fiscal deficit driven by strong direct tax revenue growth
YoY YoY YoY growth YoY YoY YoY % of Actuals
Tax components Q1 FY20 Q1 FY21 Q1 FY22 Q1 FY23 Q1 FY24 Q1 FY25 FY25 BE
growth % growth % % growth % growth % growth % to FY25 BE
Direct
Corporation tax 70640 6.3% 54,212 -23.3% 1,23,689 128.2% 1,60,822 30.0% 1,38,503 -13.9% 1,74,774 26.2% 10,20,000 17.1%
Income tax 96927 12.3% 62,123 -35.9% 1,22,692 97.5% 1,72,661 40.7% 1,91,735 11.0% 2,87,336 49.9% 11,87,000 24.2%
Indirect
Central GST 116805 28.2% 55,047 -52.9% 1,17,446 113.4% 1,79,392 52.7% 2,06,379 15.0% 2,28,328 10.6% 9,10,890 25.1%
Customs 39480 16.9% 15,416 -61.0% 41,356 168.3% 36,467 -11.8% 49,201 34.9% 47,065 -4.3% 2,37,745 19.8%
Excise duties 36951 -7.7% 35,347 -4.3% 67,907 92.1% 61,228 -9.8% 51,813 -15.4% 51,357 -0.9% 3,19,000 16.1%
Gross Tax Revenue 400421 1.4% 2,69,686 -32.6% 5,31,606 97.1% 6,50,489 22.4% 6,71,883 3.3% 8,30,797 23.7% 38,40,170 21.6%
Fig 6: Market borrowings in Q1FY25 were almost one third vs Q1 FY24 on Tbill borrowings cut
Sources of Financing the Deficit (Rs Cr)
Parameter Q1 FY19 Q1 FY20 Q1 FY21 Q1 FY22 Q1 FY23 Q1 FY24 Q1 FY25
Domestic Financing 4,25,105 4,25,110 6,32,860 2,76,024 3,41,427 4,47,464 1,35,667
Market borrowings 1,62,014 2,54,082 5,50,641 3,46,991 4,77,007 4,03,159 1,44,202
State provident funds 2,271 2,230 8,478 2,455 -3,974 422 -1,956
Special deposits -71 -105 -387 -25 -115 -589 -122
Small savings 43,843 52,957 62,109 90,647 98,485 1,36,555 90,462
Others (Public account) -1,887 -38,176 -18,477 -7,414 70,306 1,45,855 21,581
Cash Balance 944 4,899 4,900 4,990 4,989 4,899 4,496
Investment(-) / Redemption (+) of Surplus cash)
1,62,555 1,22,692 25,597 -1,61,620 -3,05,271 -1,94,160 -1,22,996
Ways & means advances 55,435 26,531 0 0 0 -48,677
Total Financing 4,29,033 4,32,055 6,62,363 2,74,245 3,51,871 4,51,370 1,35,712
BE: Budget estimates; Source: CGA; Budget documents; UBI Research
Classification: Public
Banking Research Team
Kanika Pasricha
Chief Economic Advisor [email protected]
Suneesh K [email protected]
R Gunaseelan [email protected]
Nidhi Arora [email protected]
Rajesh Ranjan [email protected]
Jovana Luke George [email protected]
Amit Srivastava [email protected]
Rohit Yarmal [email protected]
S. Jaya Laxmi [email protected]
Dhiraj Kumar [email protected]
Akash Deb [email protected]
Shreyas Bidarkar [email protected]
Disclaimer:
The views expressed in this report are personal views of the author(s) and do not necessarily reflect the views
of Union Bank of India. Nothing contained in this publication shall constitute or be deemed to constitute an
offer to sell/ purchase or as an invitation or solicitation to do so for any securities of any entity. Union Bank
of India and/ or its Affiliates and its subsidiaries make no representation as to the accuracy; completeness or
reliability of any information contained herein or otherwise provided and hereby disclaim any liability
regarding the same.
Classification: Public
