SBI report projects fiscal deficit at 5.5 per cent of GDP for FY25; gross tax to GDP ratio reaches 16-year high

New Delhi [India], January 24 : The Economic Research Department of the State Bank of India (SBI) has released a comprehensive research report forecasting the fiscal scenario for the upcoming financial years.
According to the report, the fiscal deficit for the fiscal year 2024-25 is anticipated to be set close to 5.5 per cent of the Gross Domestic Product (GDP).
Significantly, the SBI noted that the Gross Tax to GDP ratio is at a 16-year high in the current fiscal year (FY24) and could potentially reach its highest point in the last two decades in FY25.
The report highlights the Interim Budget, set against the backdrop of a robust 7.3 per cent growth in the current fiscal year. This momentum positions the government to work towards the path of fiscal consolidation.
The research suggests that net tax revenue is likely to surpass budget estimates by Rs 80,000 crores, with non-tax revenue exceeding estimates by Rs 50,000 crores.
Despite an anticipated expenditure surpassing budget estimates by around Rs 60,000 crores, the report suggests the government can optimize the fiscal situation by employing an automatic fiscal stabilizer based on just-in-time fund releases aligned with spending patterns across various ministries.
In terms of tax revenue, the report predicts that the gross tax revenue, which is currently at 11.6 per cent of GDP in FY24, is poised to reach a 16-year high.
Further, in FY25, it is expected to achieve the highest levels witnessed in the last two decades.
The fiscal deficit, while potentially declining in absolute terms in FY24, is projected to be around 5.9 per cent of GDP, with an interim budget target of 5.5 per cent in FY25.
The final budget, to be presented in July, may set it lower at 5.3 per cent to 5.4 per cent, contingent on GDP numbers released in May 2024.
The report estimates the net market borrowing of the Centre to be approximately Rs 11.7 lakh crore in FY25. With repayments of Rs 3.6 lakh crore, gross borrowings are anticipated to be around Rs 15.3 lakh crore.
However, the government may utilise switches to adjust gross borrowings lower than this figure. Additionally, the report foresees a net issuance of T-Bills to the tune of Rs 50,000 crores.
On the financing to close the fiscal deficit, the report suggests the government's reliance on small saving schemes will persist. A targeted push towards schemes such as Sukanya Samriddhi Yojana (SSY) is recommended, including encouraging fresh registrations in a mission-driven mode.
Utilizing Business Correspondent (BC) channel partners in banks is also advised to enhance the outreach of such schemes.
The report anticipates the government's focus on solar rooftops, aligning with Prime Minister Narendra Modi's vision to reach 1 crore households.
Similarly, a roadmap for a significant push to the Pradhan Mantri Awas Yojana (PMAY) is expected. Utilizing land banks available across states to provide housing units for slum dwellers and marginalized segments of the population is proposed as a constructive measure.
Deepak Agrawal, CIO Debt at Kotak Mutual Fund, put forward his expectations, saying, "We expect Government to work towards its glide path of fiscal consolidation and accordingly fiscal deficit to GDP for FY25 is likely to be in the band of 5.3 per cent~5.5 per cent. Spending on capex is likely to be the focus area for the Government like last year. The borrowing requirements are likely to be met with flows from J P Morgan Emerging Market Bond Index to start from Jun'24."