Strong Economy, Tax Revenues To Reduce Fiscal Deficit By 40-50bps From Current Fiscal: SBI

For FY25, a strong economy and buoyant tax revenues will let the government reduce the fiscal deficit by 40-50 bps from the current fiscal to 5. 4 to 5. 5 per cent of gross domestic product (GDP), the State Bank of India (SBI) has said in a report.

The fiscal deficit at the end of November 2023 stood at Rs 9. 06 lakh crore or 50. 7 per cent of budget estimates (BE).

However, taking into account the revised GDP figures of today, if tax receipts grew by the BE, then the government may have to curtail spending by Rs 37,178 crore without changing the FD target of 5. 9 per cent of the GDP in FY24, it added. The expenditure side trends are largely dictated by the trends in the nominal GVA which has slowed down quite sharply.

The nominal GVA registered a growth of eight per cent, a decline by 7. 4 per cent from the previous year. The sluggishness in GVA directly impacts demand, SBI added.

Consequently, private consumption therefore is expected to slow down. The real private consumption growth is estimated at 4. 4 per cent in FY24 down from 7.

5 per cent in FY23. The GFCF remains the only stable head under expenditures which is estimated to grow at 10. 3 per cent.

On the external side, the export growth has slowed considerably in line with the slowdown in principal export markets. The exports are estimated to grow at 1. 4 per cent, down from 13.

6 per cent in FY23. The report also mentioned that the sub-segment ‘Financial, Real Estate & Professional Services’ growth is expected to increase by 8. 9 per cent in FY24, as compared to growth of 7.

0 per cent in FY23. The public administration sub-segment is also likely to increase by 7. 7 per cent, compared to last year’s growth of 7.

2 per cent. Bolstering the gung-ho sentiments further, the first advance estimate (AE) of GDP for FY24 indicated GDP growth at 7. 3 per cent as compared to 7.

2 per cent in FY23. The GVA growth estimate is 6. 9 per cent.

Accordingly, the per capita real GDP is expected to increase by 6. 4 per cent in FY24. Interestingly, during the pre-pandemic years, the real per capita GDP growth was averaging 5.

3 per cent. Additionally, per capita PFCE in real terms will expand by 3. 5 per cent in FY24.

The post-pandemic average of per capita PFCE however is at 6. 7 per cent, against 5. 5 per cent in pre pandemic era.

The SBI report also added that agri and allied activities are likely to decelerate to 1. 8 per cent in FY24 as against the previous year’s growth of 4. 0 per cent while the industry appears to have recovered completely from the pandemic scars and is expected to grow by 7.

9 per cent in FY24 as compared to expansion of 4. 4 per cent growth in FY23. However, the service sector is likely to grow by 7.

7 per cent in FY24, compared to a growth of 9. 5 per cent in FY23. The deceleration expected in services growth is primarily due to the lower growth in the ‘trade, hotels, transport, communication and broadcasting’, which is expected to grow by merely 6.

3 per cent as compared to a staggering 14. 0 per cent in FY23. “One of the possible reasons for this slower growth may be the base effect,” according to the report.

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