Fiscal Prudence: Government's Deficit Declines Amid Strong Tax Revenue Growth

The central government's fiscal deficit narrowed to Rs 1.41 lakh crore by July 24, aided by moderate tax revenue growth and stable spending, according to Anand Rathi's report. The deficit for April-July stood at 17.2% of the forecasted total. Personal income tax collections grew significantly, while corporate tax collections and divestment revenues declined.

The central government is steadily pursuing fiscal prudence with a significant decline in its fiscal deficit to Rs 1.41 lakh crore as of July 24, from Rs 1.54 lakh crore in the same period last year, according to a report by financial services company Anand Rathi.

The report attributes this improvement to moderate growth in tax revenues coupled with stable government spending, highlighting that the fiscal deficit for the first four months of the current fiscal year (April-July) stood at Rs 2.8 lakh crore, or 17.2 per cent of the estimated total, compared to Rs 6.1 lakh crore in the same period last year. Government spending during these months was lower, with capital expenditure down by 17.6 per cent year-on-year.

Personal income tax collections showcased a robust 64 per cent year-on-year growth in July 2024 as the deadline for annual tax returns approached, reaching 33 per cent of the budgeted target for FY25. On the other hand, corporate tax collections experienced negative growth due to ongoing refunds. Indirect tax collections saw improvement, with customs duty revenues rising by 29 per cent year-on-year. Though revenue from divestment remained stagnant, non-tax revenues surged by 70 per cent year-on-year.

Overall government spending recovered to 27 per cent of the budgeted target for the first four months, with capital expenditure rebounding by 108 per cent year-on-year in July 2024, although it remains 18 per cent lower for the fiscal year. Factors such as the model code of conduct during elections impacted spending recovery, but it is expected to pick up following the finance bill's approval. The report also notes that strong personal income tax collections and a record dividend payment from the RBI have bolstered the fiscal situation despite lagging divestment revenues.

The central government's strong revenue performance suggests there will be no changes to its borrowing program, as maintaining robust spending on infrastructure and social schemes remains a priority.

(With inputs from agencies.)