FY24 fiscal target to be met; FY26 target may need capex pull-back

Fiscal deficit target: If the current trend of revenue is sustained, we see no fiscal slippage despite the expected shortfall in disinvestment revenue as it would be more than adequately compensated by gains in tax and non-tax revenue, a report by Elara Securities said. 

According to the report, higher expenditure including net cash outgo of Rs 583.78 billion under supplementary demand for grants can be comfortably managed.  “We anticipate the government to target a fiscal deficit of 5.3 per cent of GDP in FY25E. If the government does not push ahead its glide path, then capital expenditure may see moderated growth,” the report added further. 

However, sustained capex push by the government demands finding newer resources. Renewed push for PSU disinvestment especially exiting non-strategic sectors could come in handy.

State Capex Push 

Yet, for a list of 17 states under review, the overall expenditure has been significantly higher, led by higher revenue expenditure.  Additionally, states such as Maharashtra, Haryana, and Rajasthan have announced supplementary demands for extra spending.

The report mentioned that around 20 states spent only 1.3 per cent of GSDP in FY23A versus 2.6 per cent indicated in FY23RE. The best capital outlay in the recent years has been in FY22 at 2.2 per cent of GDP. 

“We see serious constraint in the state’s ability to spend on capex in FY24BE too,” it said.  The government has set the fiscal deficit target of 5.9 per cent in FY24. The long-term target of the government is to reach to fiscal deficit target of 4.5 per cent by FY26.