Fiscal deficit in April-May at 3% of annual target

New Delhi: The central government's fiscal deficit in the first two months of FY25 narrowed to 3% of the annual target, compared with 11.8% a year before, as revenue mop-up rose on the back of a generous central bank dividend in May while expenditure eased, substantially erasing the April gap.

The deficit was to the tune of 12.5% of the full-year target in April, against 7.5% a year before.

The improved performance in May keeps the government firmly on course to realise its target of containing the fiscal gap at 5.1% of GDP in FY25, analysts said. It aims to reduce the gap further to 4.5% of GDP in FY26. The official data released on Friday showed, in absolute terms, the fiscal deficit between April and May stood at just ₹50,615 crore, compared with ₹2,10,287 crore a year before. In May alone, the government witnessed a rare fiscal surplus of ₹1.6 lakh crore, driven by a record ₹2.11 lakh crore central bank dividend and a compression in both capital and revenue spending amid the general election, the data showed.

In the first two months of this fiscal, revenue expenditure grew 4.7% from a year earlier, while capital spending dropped 14.4%. The moderation is sharper in May alone-capex crashed by a half while revenue spending dropped 33% from the year before. Consequently, total expenditure between April and May eased 0.4% from a year earlier to ₹6.23 lakh crore.

"The revenue upside seen from non-tax--and to a smaller extent--tax receipts suggests headroom to both boost expenditure and target a faster fiscal consolidation than what was pencilled into the Interim Budget for FY2025," said Aditi Nayar, chief economist at ICRA.

Total receipts hit ₹5.73 lakh crore until May, up 37.8% from a year before and way above the targeted full-year increase of 10.8%, thanks to better-than-expected tax and non-tax revenue.

Net tax receipts until May rose 14.7% from a year before to ₹3.19 lakh crore, while non-tax revenue mop-up surged 87% to ₹2.52 lakh crore.