India's Fiscal Future: A Balance of Challenges and Strengths

A recent CareEdge Ratings report projects India's fiscal deficit for FY25 at 4.8% of GDP, slightly below the budgeted 4.9%, thanks to strong GST and income tax revenues. Challenges include shortfalls in corporate tax collections and capital expenditure. Yet, services exports are expected to thrive, bolstering the economy.

The fiscal deficit of India's central government is projected to be 4.8% of GDP for FY25, representing a slight improvement from the budgeted estimate of 4.9%, according to a report by CareEdge Ratings. This enhancement is largely credited to robust tax collections, despite certain shortfalls.

Gross tax revenue has benefited from strong performances in goods and services tax (GST) and income tax, which have compensated for weaker collections in corporate tax and union excise duties. However, the central government's capital expenditure is poised to fall short of its target by Rs 1.5 trillion, potentially impacting long-term infrastructure growth.

Despite a nominal GDP growth estimate of 9.9%—a dip from the budgeted 10.5%—India's real GDP growth is expected to remain solid at 6.5% in FY25, alongside predictions for moderated CPI inflation due to stabilizing food prices. The report foresees mixed results in export performance, with merchandise exports projected to grow modestly due to global uncertainties, while services exports are anticipated to grow robustly at 13%, driven by sectors like IT and professional services.

(With inputs from agencies.)