The Centre’s fiscal deficit, or the gap between the Union Government’s receipts and expenditure, has widened sharply from about ₹11 lakh crore by January to ₹15 lakh crore at the end of February. This represents the deficit moving up from 63.6% of the revised target of ₹17.3 lakh crore to 86.5% within 29 days. This is a significantly bumpier trajectory compared with last year — the deficit target was ₹17.55 lakh crore in 2022-23, it stood at 67.6% of target by January and reached 82.6% in February when the deficit rose ₹2.3 lakh crore. Eventually, last year’s fiscal gap was ₹17.33 lakh crore, virtually the same as this year’s goal. A couple of factors partially explain the February deficit spurt. One, the Centre transferred around ₹2.15 lakh crore to States through two instalments of their tax devolution share, as opposed to just ₹1.4 lakh crore last year. Second, capital expenditure which had slumped to ₹47,600 crore this January, was scaled up to ₹84,400 crore, over four times February 2023’s capex outlay. Capex will have to further rise to ₹1.4 lakh crore in March to meet the government’s ₹10 lakh crore target, but the implementation of the Model Code of Conduct for the Lok Sabha polls mid-way through the month could temper the number a bit.
As a proportion of GDP, the deficit last year stood at 6.4% and this year’s original target was 5.9% that Finance Minister Nirmala Sitharaman revised to 5.8% in the interim Budget last month. The government has committed to narrow it to 4.5% of GDP by 2025-26, with a 5.1% target for 2024-25. This glide path may need some recalibration in the full Budget for the year after the general election, depending on the next government’s priorities and the state of the economy over the current and next quarter. Having sought to prop up growth through public capex since the COVID-19 pandemic, the Centre is hoping private investment shifts to the driving seat, but high inflation, a bad monsoon and uneven consumption demand cloud those hopes. On the revenue spending front, the government still had ₹6 lakh crore of spending room available for March. Just three critical people-centric ministries — Agriculture, Rural Development and Consumer Affairs — still had over ₹1.03 lakh crore of firepower left for the last month of this fiscal despite their planned spends being revised in February. It is quite plausible that some Ministries will miss their targets and yield a positive surprise on the full-year deficit number. Tightening the belt is good for macroeconomic health, but persistently missing spending goals compromises intended outcomes and signals that there is scope to plan outlays better and borrow less in coming years.