What are the key assumptions underpinning fiscal math for FY 2024-25? The Interim Budget assumes a 10.5 per cent growth in nominal GDP in FY25. Gross tax receipts are estimated to increase by 14 per cent—with income tax at a whopping 28.4 per cent, corporate tax at 13 per cent, GST at 11.6 per cent, customs decreasing by -0.8 per cent, and excise by -6 per cent.
Revenue receipts are estimated to rise by 14 per cent, with tax revenues (net to Centre) increasing by 11.6 per cent. However, non-tax revenues are estimated to rise by a whopping 32 per cent, driven mainly by the increased dividends from the Reserve Bank of India (RBI) and revenues from the sale of telecom spectrum waves.
With the use of a magic wand, revenue expenditure increase has been contained at just 4.3 per cent from Rs 35.02 lakh crore in FY24 BE (budget estimate) to Rs 36.54 lakh crore in FY25 BE.
Within revenue expenditure, interest payments are estimated to rise by 10 per cent from Rs 10.79 lakh crore in FY24 BE to Rs 11.90 lakh crore in FY25 BE.
Total capital expenditure, including grants for the creation of a capital account, rises by 9 per cent from Rs 13.7 lakh crore in FY24 BE to Rs 14.96 lakh crore in FY25 BE. The rise in total expenditure is estimated at a modest 5.8 per cent.
The fiscal deficit in FY25 is projected at Rs 16.85 lakh crore (5.1 per cent of the estimated nominal GDP of Rs 327.71 lakh crore).
So, in FY25, the government of India is going to earn Rs 30.8 lakh crore, including divestment proceeds of Rs 50,000 crore and non-tax revenues comprising mainly dividends from RBI or Public Sector Undertakings (PSUs) and telecom receipts of Rs 3.99 lakh crore. And the Centre plans to spend Rs 47.65 lakh crore. This means for every Rs 1 it earns, it will spend Rs 1.547, or for every Rs 1 it spends it will take in only Rs 0.646.
As the late RBI Deputy Governor SS Tarapore used to tell me, instead of focusing on fiscal deficit as percentage of GDP, which takes complex calculations and is based on far too many imprecise factors, especially in a data-poor nation like ours, we should look at fiscal deficit vis-a-vis recurring revenue receipts. When seen in this context, the situation looks distinctively gloomy and sobering.
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Private sector investment
Has the government tightened its belt, and will significantly large resources be available for crowding in private sector capital investment?
Although the government’s gross market borrowings will come down from Rs 15.43 lakh crore in FY24 RE (revised estimate) to Rs 14.13 lakh crore in FY25 BE; the net borrowing is almost at the same level at Rs 11.75 lakh crore in FY25 BE compared to Rs 11.80 lakh crore in FY24 RE.
The government aims to achieve a fiscal deficit target of 5.1 per cent of GDP in FY25 versus 5.8 per cent in FY24. With a projected GDP of Rs 327.71 lakh crore in FY25, this 0.7 per cent reduction would save Rs 2.29 lakh crore. Had the fiscal deficit remained at the same percentage of GDP in FY25 as in FY24, the government’s gross borrowing would have increased to that extent. Of course, it would then have adversely affected India’s credit rating, and bond yields would have seen a sharp rise—elevating the cost of funds in the economy, and raising skepticism among investors about the country’s already-delayed medium-term fiscal consolidation plan.
Expenditure on central sector schemes/projects in railways–one of the government’s principal twin engines of growth other than roads–is up from Rs 2.4 lakh crore in FY24 RE to Rs 2.52 lakh crore in FY25 BE, showing only 5 per cent year-on-year growth. Central sector scheme/projects expenditure in the roads sector is up from Rs 2.76 lakh crore (RE) to Rs 2.77 lakh crore i.e. a measly 0.3 growth.
Given the increased emphasis on the defence sector, the capital outlay on it has only increased from Rs 1.62 lakh crore in FY24 BE to Rs 1.72 lakh crore in FY25 BE, reflecting a paltry 6 per cent year-on-year growth.
Despite tepid aggregate demand in the rural sector and pressure on farm incomes, fertiliser subsidies to our Aannadatas haven’t been increased. Fertiliser urea subsidy is actually down from Rs 1.28 lakh crore in FY24 RE to Rs 1.19 lakh crore in FY25 BE. Nutrient-based subsidy is down from Rs 60,000 crore in FY24 RE to Rs 45,000 crore in FY25 BE.
Also read: Interim Budget 2024 works with limitations, gives the next govt a roadmap for ‘Viksit Bharat’
Subsidies, OMC support
In FY24, food subsidy was budgeted at Rs 1.97 lakh crore and the revised estimate for FY24 is Rs 2.11 lakh crore. For FY25, the subsidy budget has remained almost flat at Rs 2.05 lakh crore compared to the revised estimates for FY24. In FY25, the entire food subsidy is going to be disbursed through Pradhan Mantri Garib Kalyan Anna Yojana.
In the crucial petroleum sector, the direct benefit transfer and subsidy on LPG cylinders for poor households are up from Rs 9,960 crore FY24 RE to Rs 10,594 crore FY25 BE–another measly 6 per cent increase.
Government-owned oil marketing companies (OMCs) are called upon, when global crude oil prices are elevated, to refrain from increasing prices of petrol and diesel and discharge national duty. However, capital support to OMCs is down by 50 per cent from Rs 30,000 crore in FY24 RE to Rs 15,000 crore in FY25 BE.
In view of the strong upmove in Indian stock markets during FY24, the government’s disinvestment program, involving the sale of partial or controlling stakes in various PSUs, was under scrutiny.
Miscellaneous capital receipts, a part of non-debt receipts, mainly consisting of disinvestment proceeds from PSUs, were projected to be Rs 61,000 crore in FY24 BE. However, only Rs 30,000 crore was achieved, despite Indian equities having a dream run in FY24. As hope springs eternal, the government has budgeted Rs 50,000 crore under this category for FY25 BE.
Dividends from various PSUs and PSBs were budgeted at Rs 43,000 crore in FY24 BE. The revised estimates for FY24 are pegged at Rs 50,000 crore, which remains more or less flat at Rs 48,000 crore in FY25 BE. Meanwhile, the dividend from the Old Lady on the Mint Street (RBI) was budgeted at Rs 48,000 crore in FY24 but has moved up to a whopping Rs 1.04 lakh crore in revised estimates for FY24 (116.7 per cent rise compared to the budgeted amount) and are expected to remain broadly in line at Rs 1.02 lakh crore in FY25 BE.
The government continues to reap rich harvests from RBI’s bounty and benevolence.
Receipts from the telecom sector form a large chunk of non-tax revenue receipts. What are the underlying budgeted assumptions in FY25?
A major component of non-tax revenue receipts is from telecom (communication), which includes both regular receipts and auction proceeds. The FY24 budgeted estimate was Rs 89,469 crore, which has gone up marginally to Rs 93,541 crore in revised estimates for FY24. The budget has assumed a whopping 34.4 per cent increase in FY25 to Rs 1.20 lakh crore (BE to BE).
Good insight into the economic reality