India’s FY25 Fiscal Deficit Projected at 4.8% Amid Robust Tax Collections

Strong GST and income tax revenues offset weaker corporate tax performance; capex shortfall raises concerns for infrastructure growth.

New Delhi, December 16: The fiscal deficit of the Indian government for FY25 is projected to be 4.8% of GDP, slightly below the budgeted estimate of 4.9%, according to a report by CareEdge Ratings. This modest improvement is largely driven by strong tax collections, despite shortfalls in some revenue streams.

“Overall, we project the fiscal deficit at 4.8% of GDP, marginally lower than the budgeted 4.9%,” the report stated.

The report highlighted robust performance in goods and services tax (GST) and income tax collections, which have cushioned the impact of weaker corporate tax and union excise duty revenues. However, concerns remain over the Centre’s capital expenditure (capex), which is anticipated to fall short of its target by ₹1.5 trillion, potentially affecting long-term infrastructure development.

Revenue and Economic Performance
The nominal GDP growth for FY25 is estimated to be 9.9%, slightly below the budgeted 10.5%. Nonetheless, real GDP growth is expected to remain healthy at 6.5%. Meanwhile, revenue expenditure could exceed budget estimates due to additional allocations under the first supplementary grant.

On inflation, the report predicts moderation in consumer price index (CPI) inflation, driven by stabilizing food prices.

“Healthy performance in GST and income tax collections has helped partially offset the weakness in corporate tax and union excise duty collections,” the report added.

External Sector Outlook
India’s export performance is likely to remain mixed, with merchandise exports projected to grow modestly by 2.5% in FY25 due to global demand uncertainties. However, services exports are forecast to rise robustly by 13%, powered by IT and professional services.

Strong remittance inflows are also expected to support the current account balance, keeping the current account deficit (CAD) manageable at 0.9% of GDP for FY25.

Challenges in Capital Spending
The report flagged concerns over the Centre’s shortfall in capex, which could impact infrastructure growth. This gap contrasts with healthy trends in tax revenue and services exports, which continue to provide a cushion against economic headwinds.

Overall, the report underscores a balanced economic outlook, highlighting resilience in tax revenues and services exports while cautioning about capex shortfalls and external trade uncertainties.