Non-tax revenues and disinvestment
Non-tax revenues relative to GDP have languished in the range of 1.0% to 1.8% throughout the period from 2014-15 to 2023-24. In 2023-24, it is estimated at 1.4% of GDP (CGA). However, after accounting for RBI’s enhanced dividends, there would be an additional transfer to the GoI of INR1.1 lakh crore in 2024-25, amounting to 0.33% of estimated GDP. Thus, in the upcoming budget, non-tax revenues may be expected to reach a level of 1.55% of GDP in 2024-25.
Disinvestment receipts to GDP ratio have remained quite low during the period 2014-15 to 2023-24. Actual disinvestment receipts relative to the target were in excess of 100% in only four years of the ten-year period under review. This performance, however, has deteriorated in recent years from 2021-22 to 2023-24.
Expenditure claims
On the expenditure side, revenue expenditure has been stable in the range of 11.0% to 13.6% of GDP during 2014-15 to 2023-24, excluding 2020-21 when it increased to 15.5%. Among major components of revenue expenditure, subsidies fell from 2.07% in 2014-15 to a low of 1.18% in 2019-20. It rose in the COVID year of 2020-21 to 3.82% of GDP before falling again to 1.49% in 2023-24 as per the revised estimates in the interim budget 2024. Interest payments, which had stayed within a narrow range of 3% to 3.2% of GDP during 2014-15 to 2019-20 have increased to 3.6% in 2023-24 owing to an increase in GoI’s debt to GDP ratio. Capital expenditure which had remained less than 2% of GDP between 2014-15 and 2019-20 has shown a sustained increase from 2.1% in 2020-21 to 3.2% in 2023-24.
Fiscal deficit and debt
GoI’s fiscal deficit had fallen from 4.10% of GDP in 2014-15 to 3.44% in 2018-19. This movement towards the FRBM norm of 3% was reversed in 2020-21 due to the contraction in real GDP of (-)5.8%. Fiscal deficit shot up to 9.17% of GDP, although since then, there has been a gradual fall. By 2023-24, it has reached 5.6% as per the CGA actuals, an improvement over 5.8% as estimated in the interim budget 2024. These higher than norm fiscal deficit levels have resulted in an increase in outstanding debt of the GoI, which had peaked to 60.7% of GDP in 2020-21. Although it has fallen to an estimated 57.1% in 2023-24, it remains higher than the FRBM norm of 40%. The quality of fiscal deficit reflected by the ratio of revenue deficit to fiscal deficit has however improved from near 80% in 2020-21 to 46.3% in 2023-24.
Union Budget 2024-25: the fiscal arithmetic
For the 2024-25 final central budget, the main trade-off appears to be between emphasizing capital expenditure growth vis-à-vis a reduction in fiscal deficit to GDP ratio. In order to understand the fiscal arithmetic, we look at the difference between fiscal aggregates relative to GDP between the base year of 2023-24 and 2024-25 (2024-25 (FBE) minus 2023-24). This difference is at 0.38% points of GDP for GoI’s revenue receipts (tax plus non-tax revenues). Further, there is an expected increase in non-debt capital receipts of 0.04% points, giving an additionality of 0.42% points for non-debt receipts (revenue receipts plus non-debt capital receipts). On the expenditure side, following recent trends, we expect a further fall in revenue expenditure relative to GDP by a margin of 0.37% points (Table 2). This would enable an increase in revenue expenditure growth of 7.5% in 2024-25 FBE over 2023-24 CGA actuals. This is slightly higher than 4.6% growth provided in the interim budget 2024, reflecting additional allocations to cover some of the post-election supplementary expenditures. Thus, a total additionality of 0.79% points of GDP would be available (0.42% points on account of an increase in non-debt receipts plus 0.37% points on account of reduction in revenue expenditure). Of this, 0.6% points of GDP may be used to bring down GoI’s fiscal deficit to GDP ratio to 5% and the remaining 0.19% points can be used to increase capital expenditure to GDP ratio to 3.4%, implying a capital expenditure growth of 17.5% in 2024-25 over 2023-24 CGA actuals. This may be increased even further if the fiscal deficit to GDP ratio is kept at 5.1% as per the interim budget 2024.