India: On-track fiscal consolidation, capex catch-up
At the half-way mark through the year, we take stock of the fiscal run-rate
Group Research - Econs, Radhika Rao6 Nov 2024
  • The centre’s fiscal run-rate for first six months of FY25 is on track to meet consolidation goals.
  • After a delayed start due to elections, capex spending is playing catch-up.
  • Direct tax growth is in double-digits, but the pace has moderated from last year.
  • FY25 deficit might improve vs target as capex allocation might be under spent.
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Fiscal run-rate

The Final Budget for FY25 tabled in July 2024 saw the central government deliver on the optimistic end of budget expectations, with the FY25 fiscal deficit set at 4.9% of GDP, 20bp better than the interim numbers (India Budget: Consolidation without expenditure compromise). We take stock of the FY25 run-rate, mid-way through the fiscal year.

Outlook

Post the pandemic, the central government has returned to its consolidation path, lowering the fiscal deficit from -9.2% of GDP in FY21 to -4.9% of GDP in FY25. Plans are to lower this metric to -4.5% of GDP in FY26, in effect halving the ratio in over four years. There will be a two-pronged focus in second half of the year.

High-frequency indicators points to softer economic momentum.

The economy’s cyclical trend is softening at the margin, as captured by our GDP Nowcast model. We track domestic demand consumption, industrial activity and trade using propriety indices.



To read the full report, click here to Download the PDF


Radhika Rao

Senior Economist – Eurozone, India, Indonesia
[email protected]

 


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