India’s fiscal deficit for the financial year 2024-25 (FY25) has come in at ₹15.77 trillion, marginally exceeding the budgeted estimate of ₹15.70 trillion, as per the provisional figures released by the Controller General of Accounts (CGA) on Friday. While the number slightly surpasses the government’s target, it is still a considerable improvement over the ₹16.54 trillion fiscal deficit recorded in FY24.

The fiscal deficit for FY25 amounts to 4.8 percent of India’s gross domestic product (GDP) — in line with the central government’s stated fiscal roadmap, which aims to bring the deficit down to 4.4 percent of GDP by FY26.

Understanding the Fiscal Deficit and Its Significance

A fiscal deficit occurs when the government’s expenditure exceeds its revenue, excluding borrowings. It represents the amount the government needs to borrow to bridge this gap. While some level of fiscal deficit is normal — especially when public spending boosts economic growth — a high fiscal deficit can lead to inflationary pressures and increased debt levels, making careful fiscal planning vital.

In the case of FY25, the slight overshoot of ₹77 billion above the target can largely be attributed to higher-than-anticipated capital and revenue expenditure.

Receipts and Expenditure: A Closer Look

During FY25, the government’s net tax receipts stood at ₹24.99 trillion, representing 97.7 percent of the full-year target, as compared to ₹23.27 trillion in FY24. This indicates healthy tax collections, albeit slightly under the mark.

Non-tax revenues, on the other hand, exceeded expectations, coming in at ₹5.38 trillion, or 101.2 percent of the target, boosted by strong income from dividends and interest.

As a result, the total revenue receipts during the year amounted to ₹30.78 trillion, or 97.8 percent of the budgeted estimate. In comparison, revenue receipts stood at ₹27.89 trillion in FY24, showing year-on-year improvement.

On the expenditure side, total central government spending reached ₹46.56 trillion, which is 98.7 percent of the full-year target, up from ₹44.43 trillion in FY24.

A key area of focus was capital expenditure, which rose significantly to ₹10.52 trillion, 3.3 percent above the annual target, and higher than the ₹9.49 trillion spent in FY24. This rise was particularly visible in the last two quarters, as the government stepped up infrastructure and developmental spending following a slow start to the year due to general elections.

Revenue expenditure, which includes salaries, subsidies, interest payments and welfare schemes, amounted to ₹36.04 trillion — 97.4 percent of the annual budget, up from ₹34.94 trillion in the previous year.

Support from the RBI Dividend

A major contributor to fiscal support in FY25 was the record dividend payout by the Reserve Bank of India (RBI). The central bank transferred ₹2.11 trillion to the government, marking a 141 percent increase over the previous year's dividend.

This substantial transfer played a crucial role in offsetting potential shortfalls in tax revenue and supporting higher public expenditure. The payout was accounted for in FY25, even though it was based on the RBI’s surplus from FY24 operations.

This significant buffer helped the government maintain the fiscal deficit at 4.8 percent of GDP, despite higher capital outlays and rising subsidies.

The RBI is also expected to transfer a record ₹2.69 trillion dividend for FY25 operations in FY26, offering the government further cushion as it works towards reducing the deficit to 4.4 percent of GDP in FY26.

Expert Insights: Stability Despite Challenges

Aditi Nayar, Chief Economist at ICRA, noted that the marginal breach of the fiscal deficit target in absolute terms (₹15.77 trillion vs ₹15.70 trillion) was balanced by higher capital spending and ₹0.9 trillion in revenue savings.

Importantly, she highlighted that a 2 percent upward revision in nominal GDP estimates helped keep the deficit-to-GDP ratio at 4.8 percent, which aligns with the government’s fiscal targets.

She further added that for FY26, even though nominal GDP growth is expected to slow to 9 percent (compared to a budgeted 10.1 percent), the government is likely to achieve its 4.4 percent deficit target, given the larger GDP base and potential for fiscal slippage of ₹300–350 billion.

The additional cushion from the RBI’s upcoming dividend would also support fiscal discipline amidst global uncertainties, such as oil price fluctuations, geopolitical tensions, and supply chain volatility.

The Path to Fiscal Consolidation

India has been on a multi-year path toward fiscal consolidation, aiming to bring the fiscal deficit below 4 percent of GDP over time. While the COVID-19 pandemic necessitated expansionary fiscal policies, the post-pandemic years have seen a gradual return to fiscal prudence.

The FY25 figures reflect a balanced approach, with strong capital spending aimed at long-term economic growth and strategic resource mobilisation through dividends and tax revenues.

Moreover, the government’s emphasis on infrastructure investment, subsidy rationalisation, and economic formalisation is expected to enhance productivity and broaden the tax base, making future fiscal goals more achievable.

Conclusion

India’s fiscal deficit for FY25, at ₹15.77 trillion or 4.8 percent of GDP, is within acceptable deviation from the budgeted target, signalling robust public financial management despite higher spending.

Buoyed by strong non-tax revenues, record RBI dividend payouts, and capital expenditure-driven growth, the government appears well-positioned to stay on course with its fiscal consolidation roadmap, aiming for a 4.4 percent deficit in FY26.

With nominal GDP growth, strategic disinvestment plans, and sustained reform momentum, the country’s fiscal outlook remains resilient, even amid global economic uncertainty.

The Upcoming IPOs in this week and coming weeks are Ganga Bath Fittings, Victory Electric Vehicles International, Wagons Learning.

The Current active IPO are 3B Films, N R Vandana Tex Industries, Scoda Tubes, Neptune Petrochemicals.

Start your Stock Market Journey and Apply in IPO by Opening Free Demat Account in Choice Broking FinX.

Join our Trading with CA Abhay Telegram Channel for regular Stock Market Trading and Investment Calls by CA Abhay Varn - SEBI Registered Research Analyst.