A key highlight of the recent budget announcement was the reduction in the central government’s fiscal deficit, which was revised from the previously projected 5.12% in the February 2024 budget to 4.9% of the GDP. In absolute terms, the deficit is now anticipated to be Rs 16.13 lakh crore, down from the earlier estimate of Rs 16.85 lakh crore. This represents a significant fiscal contraction of Rs 72,000 crore in the July 2024 budget update. Remarkably, this adjustment has been achieved despite an increase in total expenditure from Rs 47.66 lakh crore to Rs 48.21 lakh crore—an uptick of Rs 55,000 crore. The government managed to offset this by boosting its revenue collections from Rs 30.8 lakh crore to Rs 32.07 lakh crore, an increase of Rs 1.27 lakh crore. When the additional revenue of Rs 1.27 lakh crore is balanced against the Rs 55,000 crore hike in spending, the resulting fiscal improvement stands at Rs 72,000 crore, aligning the deficit to the new target of 4.9% of GDP. The aim of this article is to analyze the robustness of this projection. We will explore the likelihood of maintaining this revised figure, the potential risks of deviation, and the specific budgetary or economic factors that could impact these fiscal outcomes.
Risk No1 – Nominal GDP Projections
The foundational nominal GDP figure used to derive the 4.9% fiscal deficit projection is Rs 329.18 lakh crore (16.13/0.049), indicating an expected growth of 11.43% (calculated as (329.18 – 295.4) / 295.4). This projection appears optimistic, particularly in light of last year’s growth rate of just 9.6%.
