Context:

• The Government of India has successfully met its fiscal deficit target of 4.8% of GDP for the financial year 2024–25, according to provisional figures released by the Controller General of Accounts (CGA).

Key Highlights of FY25 Fiscal Performance

• Fiscal Deficit:
  The central government recorded a fiscal deficit of ?15.77 lakh crore, equal to 4.8% of GDP—matching its revised target.
• Revenue Performance:
  • Total revenue: ?30.78 lakh crore
  • Net tax revenue: ?24.99 lakh crore (97.7% of target)
• Disinvestment Receipts:
  • Proceeds from disinvestment stood at ?10,131 crore—substantially below the budgeted target but added to miscellaneous capital receipts.
• Expenditure:
  • Total government expenditure: ?46.55 lakh crore (97.8% of revised estimate)
  • Capital expenditure: ?10.52 lakh crore (spent on infrastructure and long-term assets)
  • Revenue expenditure: ?36.03 lakh crore (day-to-day expenses like salaries, subsidies)

What is Fiscal Deficit?

Fiscal deficit refers to the shortfall between the government’s total expenditure (both revenue and capital) and its total non-borrowed receipts (revenue receipts + non-debt capital receipts).

Formula:
Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-Debt Capital Receipts)

Implications of a High Fiscal Deficit

• Inflationary Pressure: Financing the deficit through money creation can stoke inflation.
• Crowding Out: Government borrowing can limit credit availability for private sector investment.
• Reduced Fiscal Flexibility: High deficits constrain the government’s ability to respond to economic downturns.
• Higher Borrowing Costs: As deficit levels rise, investor demand for government securities may drop, forcing the government to offer higher interest rates.

Benefits of a Lower Fiscal Deficit

• Improved Credit Ratings: Enhances global investor confidence and reduces borrowing costs.
• Lower Interest Burden: Frees up fiscal space for developmental spending.
• Stronger Balance of Payments: Reduces dependence on foreign debt, stabilizing currency and trade balances.
• Boosted Investor Confidence: Reflects sound fiscal management, encouraging both domestic and foreign investment.

NK Singh Committee Recommendations (FRBM Review)

• Debt Target: Total public debt should be capped at 60% of GDP (40% for the Centre, 20% for the States) by FY23.
• Fiscal Deficit Goal: Target a fiscal deficit of 2.5% of GDP by FY23.
• Establishment of a Fiscal Council:
  An independent body to:
  1. Prepare multi-year fiscal forecasts
  2. Advise on fiscal strategy
  3. Improve data quality
  4. Recommend when deviations from targets are justified
• Deviation Guidelines:
  The Committee emphasized that deviations from fiscal targets should be based only on clearly defined criteria, limiting discretionary changes by the government.

This fiscal discipline demonstrates India's continued commitment to macroeconomic stability and positions it well for future growth, despite global economic headwinds.