India Meets Fiscal Deficit Target of ₹15.77 Lakh Crore: What It Means for the Economy

Why in NEWS

The Government of India successfully achieved its fiscal deficit target of 4.8% of GDP for FY 2024–25, as per provisional data by the Controller General of Accounts (CGA). This reflects strong fiscal discipline amid rising expenditure needs.

Key Terms and Concepts Simplified

Key Term	Explanation
Fiscal Deficit	The gap between the government’s total expenditure and its total revenue (excluding borrowings). Indicates how much the government needs to borrow.
Controller General of Accounts (CGA)	The Principal Accounting Adviser to the Government. Manages national accounting systems and audits public finances.
Revenue Receipts	Income from taxes and non-tax sources like fees, dividends, etc.
Capital Receipts	Funds from disinvestment, recovery of loans, and borrowings.
Primary Deficit	Fiscal Deficit minus interest payments on earlier debt.
Effective Revenue Deficit	Revenue Deficit minus grants used for asset creation.
Fiscal Consolidation	Policy to reduce government deficit and debt accumulation.
Glide Path	A step-by-step fiscal deficit reduction strategy adopted post-COVID.
FRBM Act	Fiscal Responsibility and Budget Management Act, 2003 – ensures fiscal discipline.
Capex	Capital expenditure for infrastructure and asset creation.
Twin Deficit	Occurs when a country has both a fiscal deficit and a current account deficit.

Key Points of the News

• India met its FY 2024–25 fiscal deficit target of 4.8% of GDP.
• Fiscal deficit stood at ₹15.77 lakh crore.
• Total expenditure: ₹46.55 lakh crore
  • Revenue Expenditure: ₹36.03 lakh crore
  • Capital Expenditure: ₹10.52 lakh crore
• Total revenue receipts: ₹30.78 lakh crore
• India aims to reduce fiscal deficit further to 4.4% in FY 2025–26.
• India’s outstanding national debt projected to rise to ₹196.78 lakh crore by March 2026.

Factors Influencing Fiscal Deficit

• Fiscal Policy: Expansionary policies increase deficit; contractionary reduce it.
• Economic Cycles: Recessions increase deficits; booms reduce them.
• Unexpected Events: Wars, disasters increase spending needs.
• Tax Collection Efficiency: Weak systems widen the deficit.
• Global Factors: Commodity prices, inflation, trade shifts impact revenues and spending.

India’s Fiscal Consolidation Efforts

• FRBM Act (2003): Legal framework for fiscal discipline.
• Glide Path: Gradual reduction from 6.7% (2020-21) to 4.8% (2024–25).
• Boosted Capex: From 1.6% of GDP (2014-15) to 3.1% (2025–26 target).
• Revenue Growth: Direct tax collection up by 16.15% in FY 2024–25.
• State-Level FRLs: Encouraging states to maintain fiscal discipline.

Visual Representation

Flowchart: Fiscal Deficit Components

TOTAL EXPENDITURE
       ↓
- TOTAL RECEIPTS (Excl. Borrowings)
       ↓
= FISCAL DEFICIT
       ↓
Requires Borrowing → Adds to National Debt → Leads to Interest Payments

In a Nutshell (Mnemonic for Quick Recall)

“DEFICIT GPS”

• D – Debt burden rises
• E – Expenditure > Receipts
• F – Fiscal Policy matters
• I – Inflation risk rises
• C – Crowding out private investment
• I – Interest load increases
• T – Targets under FRBM
• G – Glide path to reduce deficit
• P – Primary deficit excludes interest
• S – Stability requires consolidation

Prelims Questions

Q1. Which of the following correctly defines Fiscal Deficit?

1. It is the gap between total revenue and capital receipts.
2. It is the difference between total expenditure and total receipts excluding borrowings.
3. It indicates the money the government borrows in a year.
   Select the correct answer using the code below:
   A. 1 and 2 only
   B. 2 and 3 only
   C. 2 only
   D. 1, 2 and 3

Q2. Consider the following statements:

1. Revenue deficit includes grants for asset creation.
2. Effective revenue deficit is always higher than revenue deficit.
3. Capital expenditure contributes to long-term asset formation.
   Which of the above is/are correct?
   A. 1 and 3 only
   B. 3 only
   C. 2 and 3 only
   D. 1, 2 and 3

Q3. With reference to the FRBM Act, consider the following statements:

1. It aims to reduce fiscal deficit and ensure macroeconomic stability.
2. The 2018 amendment introduced debt-to-GDP ratio as a fiscal anchor.
3. It mandates zero fiscal deficit by 2030.
   Which of the statements are correct?
   A. 1 and 2 only
   B. 2 and 3 only
   C. 1 and 3 only
   D. 1, 2 and 3

Mains Questions

Q1. Examine the implications of a persistent fiscal deficit on India’s macroeconomic stability. What measures has the government taken to ensure fiscal consolidation?

Q2. (PYQ – UPSC Mains GS-3, 2020) “Explain the rationale behind the Goods and Services Tax (GST) and discuss its impact on Indian fiscal federalism.”

Answers to Prelims Questions

Q No	Answer	Explanation
Q1	B	Statement 2 and 3 are correct. Fiscal deficit is calculated excluding borrowings and it shows the borrowing needs. Statement 1 is incorrect.
Q2	B	Effective revenue deficit = Revenue deficit – asset-creating grants; hence it is lower. Only statement 3 is correct.
Q3	A	Statement 1 and 2 are correct. Statement 3 is incorrect; FRBM does not mandate zero deficit by 2030.