India Achieves Fiscal Deficit Target of 4.8% for FY25

• 03 Jun 2025

For Prelims: Gross Domestic Product, Controller General of Accounts, inflation, Revenue deficit, Goods and Services Tax, National debt 

For Mains: Fiscal Deficit, Fiscal Consolidation, Fiscal Policy and its Role in Economic Stability 

Source:BS 

Why in News?

The Government of India has successfully met its fiscal deficit target of 4.8% of Gross Domestic Product (GDP) for the financial year 2024–25, as revealed in the provisional data released by the Controller General of Accounts (CGA). 

Note: The CGA, under the Department of Expenditure, Ministry of Finance, is the Principal Accounting Adviser to the Government of India.  

• The CGA manages the government’s accounting system, prepares fiscal reports, and submits Union Finance and Appropriation Accounts to Parliament under Article 150.  
• It also enhances transparency and efficiency in public fund management through integrated, IT-enabled financial systems and conducts internal audits to assess risk management, control mechanisms, and governance processes.  

What is the Fiscal Deficit? 

• About: Fiscal Deficit is the difference between the government's total expenditure and its total receipt (excluding borrowings) in a given fiscal year.  
  • Fiscal Deficit= Total Expenditure- Total Receipts (excluding borrowings). Total receipts include revenue receipts and capital receipts (both debt and non-debt creating). 
    • Non-debt creating capital receipts are those that neither involve borrowings nor result in future repayment obligations. Examples include recovery of loans and proceeds from disinvestment of Public Sector Undertakings (PSUs). 
  • Fiscal Deficit is usually expressed as a percentage of GDP to assess its impact on the broader economy. 
  • It indicates how much the government needs to borrow to meet its expenses when its income is insufficient. 
• Implications of Fiscal Deficit: A manageable fiscal deficit helps ensure macroeconomic stability. 
  • A higher fiscal deficit increases borrowing needs, leading to a rising debt burden and inflationary pressures.  
    • It can cause the crowding out effect, where private investment declines due to higher borrowing costs.  
    • Over time, it reduces fiscal space, limiting the government's ability to spend on development, and may weaken investor confidence and macroeconomic stability, potentially increasing debt levels. 
• India’s Fiscal Deficit:  In FY 2024–25 fiscal deficit stood at Rs 15.77 lakh crore, amounting to 4.8% of GDP. 
  • Revenue Collections: Total revenue receipts, comprising tax, non-tax, and capital revenues, amounted to Rs 30.78 lakh crore.  
  • Expenditure: Total expenditure for 2024–25 stood at Rs 46.55 lakh crore. Capital expenditure reached Rs 10.52 lakh crore, while revenue expenditure (salaries, subsidies, pensions) was Rs 36.03 lakh crore. 
  • The government has now laid out a tighter target of 4.4% fiscal deficit for FY 2025–26. 
• Fiscal Deficit and National Debt: National debt represents the cumulative borrowing by a government to finance past fiscal deficits.  
  • It includes liabilities like domestic/external loans, small savings, provident funds, and special securities requiring regular interest and principal repayments.  
  • India’s total outstanding debt is projected to rise to Rs 196.78 lakh crore by end of FY 2025–26, up from Rs 181.74 lakh crore in FY 2024–25. 

Types of Deficit 

• Revenue Deficit: This deficit of a government or business can be determined by subtracting the total revenue receipts from the total income expenditure. 
  • Revenue deficit = Total revenue receipts – Total revenue expenditure. 
• Effective Revenue Deficit = Revenue Deficit - grants for capital asset creation. 
• Primary Deficit: It occurs when a government's spending, excluding interest payments, is greater than its revenue from non-interest sources. 
  • Primary Deficit = Fiscal Deficit – Interest Payments. 
• Twin Deficits: It refers to a situation where a country simultaneously experiences a fiscal deficit and a current account deficit (when imports exceed exports). 

What are the Factors that Influence the Fiscal Deficit? 

• Fiscal Policy: It involves government decisions on taxation and spending, directly impacting the fiscal deficit. 
  • Expansionary Fiscal Policy (More Spending / Less Taxes):  Used when the economy is slow or in recession. The government spends more (like on jobs or infrastructure) or reduces taxes to increase people’s income. 
    • But this leads to a higher budget deficit, since earnings (revenue) are lower than expenses. 
  • Contractionary Fiscal Policy (Less Spending / More Taxes):  Used when the economy is overheating or when debt is too high. The government spends less or increases taxes. 
    • This helps to reduce the deficit, as spending and income become more balanced. 
• Economic Cycles: During recessions, deficits increase as governments spend more and tax revenues fall. During booms, higher revenues and controlled spending help reduce deficits. 
• Unexpected Events: Natural disasters, wars, or pandemics often cause sudden rises in government spending, increasing the deficit. 
• Inefficient Tax Collection: When tax systems are weak or compliance is low, governments collect less revenue than expected, widening the fiscal deficit. 
• Global Factors: Inflation, commodity price shifts, and changes in trade affect revenues and spending, influencing deficits. 

What are India’s Initiatives to Achieve Fiscal Consolidation? 

• Fiscal Responsibility and Budget Management (FRBM) Act, 2003: It was enacted to institutionalize financial discipline by setting targets for fiscal deficits and public debt.  
  • FRBM Act amended in 2018, it defined the debt-to-GDP ratio (total debt of a country relative to its GDP) as the primary fiscal anchor, aiming to reduce the fiscal deficit and the debt-to-GDP ratio. 
• Glide Path for Fiscal Deficit Reduction:  Following the Covid-19 pandemic, India adopted a "glide path" approach to fiscal consolidation, in line with the recommendations of the N.K. Singh Committee (2017). 
  • This approach aims for a gradual reduction of the fiscal deficit, balancing the need for economic support with long-term fiscal discipline.  
  • It led to a planned decrease in the fiscal deficit from 6.7% of GDP in 2020-21 to 4.8% in 2024-25. 
• Increased Capital Expenditure (Capex): India has significantly increased its capital expenditure (capex) over the past few years, rising from 1.6% of GDP in FY 2014-15 to a planned 3.1% of GDP in FY 2025-26. 
  • This focus on infrastructure development aims to stimulate economic growth and improve long-term fiscal health. 
• Revenue Mobilization: Efforts to enhance revenue collection include implementing the Goods and Services Tax (GST) to create a unified tax base and digitizing the tax system.  
  • As a result, India’s direct tax collections rose 16.15% year-on-year to Rs 25.86 lakh crore in FY 2024-25. 
• State-Level Fiscal Responsibility: States have been encouraged to adopt their own fiscal responsibility legislations (FRLs) to complement the central government's efforts. 
  • The Reserve Bank of India (RBI) has recommended that states with elevated debt levels establish a path for debt consolidation aligned with macroeconomic objectives. 

Fiscal Consolidation 

• It refers to the responsible management of government finances to ensure long-term economic stability.  
• It aims to balance revenue (tax and non-tax) with expenditure, minimizing fiscal deficits and maintaining sustainable public debt.  
• Fiscal consolidation promotes macroeconomic stability by controlling inflation and exchange rate volatility, reduces the debt burden on future generations, builds investor confidence, and ensures efficient use of public resources for development.

Drishti Mains Question:

Q. What is the fiscal deficit? Critically analyze India’s fiscal performance in FY 2024–25 in light of the government’s target.

UPSC Civil Services, Previous Year Questions (PYQ) 

Prelims

Q. Suppose the revenue expenditure is 80,000 crores and the revenue receipts of the Government are 60,000 crores. The Government budget also shows borrowings of 10,000 crores and interest payments of 6,000 crores. Which of the following statements are correct?   (2025)

1. Revenue deficit is 20,000 crores.  
2. Fiscal deficit is 10,000 crores.  
3. Primary deficit is 4,000 crores.    

Select the correct answer using the code given below.    

(a) I and II only    

(b) II and III only    

(c) I and III only    

(d) I, II and III   

Ans: (d)  

Q. A country's fiscal deficit stands at 50,000 crores. It is receiving 10,000 crores through non-debt creating capital receipts. The country's interest liabilities are 1,500 crores. What is the gross primary deficit?   (2025)

(a) 48,500 crores   

(b) 51,500 crores    

(c) 58,500 crores    

(d) None of the above   

Ans: (a) 

Q. Which one of the following is likely to be the most inflationary in its effect? (2021)

(a) Repayment of public debt 
(b) Borrowing from the public to finance a budget deficit 
(c) Borrowing from the banks to finance a budget deficit 
(d) Creation of new money to finance a budget deficit 

Ans: (d) 

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Mains 

Q1. One of the intended objectives of the Union Budget 2017-18 is to ‘transform, energise and clean India’. Analyse the measures proposed in the Budget 2017-18 to achieve the objective. (2017) 

Q2. Distinguish between Capital Budget and Revenue Budget. Explain the components of both these Budgets. (2021) 

Q.3 Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments. (2019)