India’s fiscal deficit for the first seven months of the current financial year (April-October FY25) stands at 46.5% of the budget estimate (BE), amounting to ₹7.51 lakh crore, according to a report by Union Bank of India. The figure marks a marginal improvement from ₹8.04 lakh crore (45.0% of BE) during the same period last year. However, challenges persist as the government’s capital expenditure (capex) performance lags significantly, standing at just 42% of the targeted ₹11.11 lakh crore for FY25.
The report emphasised the urgency for the government to deploy the remaining 58% of its capex budget within the last five months of the fiscal year, a task it described as “daunting.” Capex, crucial for long-term economic growth, witnessed a 14.7% decline during April-October FY25 compared to the same period last year. While October brought some relief with a moderation in the rate of decline compared to the 15.7% drop recorded in the first half of FY25, concerns over expenditure management remain.
India’s GDP growth for Q2 FY25 has also slowed to 5.4%, the lowest in seven quarters, underscoring the critical need for efficient fiscal management. Total expenditure, which showed a negative year-on-year growth of -0.4% in the first half of FY25, surged by 31.7% in October, indicating a turnaround. Revenue expenditure jumped by 41.9% during October, reversing earlier negative trends, yet the report cautioned against the disproportionate focus on revenue expenditure over capex.
The fiscal improvement in October 2024 reflects a strengthening fiscal impulse, but maintaining fiscal discipline without compromising the quality of spending will be a key challenge for policymakers. As the government navigates the twin pressures of meeting fiscal targets and boosting economic growth, the next five months will be critical in shaping the overall economic trajectory for FY25.
