India’s Fiscal Deficit Decreases: Strong Tax Collections and Government Spending Trends
The Indian government’s fiscal deficit has decreased to Rs 1.41 lakh crore as of July 24, compared to Rs 1.54 lakh crore in the same period last year. This information comes from a report by Anand Rathi, a financial services company.
Key Factors for the Reduction
The report highlights that the reduction in fiscal deficit is due to moderate growth in tax revenues and stable government spending. Over the first four months of the current fiscal year (April-July), the deficit stood at Rs 2.8 lakh crore, or 17.2% of the estimated total, compared to Rs 6.1 lakh crore in the same period last year. Government spending during these months was lower than last year, with capital expenditure down by 17.6% year-on-year.
Tax Collections
Personal income tax collections performed strongly in July 2024, growing by 64% year-on-year as the deadline for annual tax returns approached. These collections have reached 33% of the budgeted target for FY25. However, corporate tax collections turned negative again, partly due to ongoing refunds. Indirect tax collections improved, with customs duty revenues rising by up to 29% year-on-year. Non-tax revenues of the government increased by 70% year-on-year.
Government Spending
Total government spending in the first four months recovered to 27% of the budgeted target. While monthly revenue expenditure decreased by 14% year-on-year in July 2024, capital expenditure rebounded with a 108% year-on-year growth. Despite this rebound, capital spending remains 18% lower in the first four months of the fiscal year.
Future Expectations
The model code of conduct during the first two months of the year slowed spending, and recovery after the elections has been limited, pending the full-year budget announcement. Expenditure is expected to pick up as funds are released following the approval of the finance bill by the Parliament. The strong growth in personal income tax collections and a record dividend payment of Rs 2.11 lakh crore by the RBI have improved the fiscal situation, potentially offsetting any shortfalls from divestment collections. The government is unlikely to alter its borrowing programme and plans to maintain robust spending to support infrastructure and social schemes.
Doubts Revealed
Fiscal Deficit -: A fiscal deficit happens when a government spends more money than it earns from taxes and other revenues. It’s like when you spend more pocket money than you get from your parents.
Rs 1.41 lakh crore -: This is a way to say a very large amount of money in India. ‘Rs’ stands for Indian Rupees, and ‘lakh crore’ is a way to count big numbers. 1 lakh crore means 1 trillion rupees.
Tax Revenue -: Tax revenue is the money the government collects from people and businesses through taxes. It’s like the money you give to your school for fees.
Personal Income Tax -: This is the tax that people pay on the money they earn from their jobs or businesses. It’s like giving a part of your pocket money to the government.
Corporate Tax -: This is the tax that companies pay on their profits. It’s like if your family business had to give some of its earnings to the government.
Indirect Tax -: Indirect taxes are taxes that you pay when you buy things, like GST (Goods and Services Tax) on toys or chocolates.
Non-Tax Revenues -: These are the earnings of the government from sources other than taxes, like fees for services or profits from government-owned companies.
Capital Expenditure -: This is the money the government spends on building things like roads, schools, and hospitals. It’s like when your parents buy a new house or car.
Year-on-Year -: This means comparing data from one year to the same period in the previous year. It’s like comparing your grades from this year to last year.
