Mint Explainer: Why does the outlook for union govt’s finances remain positive?

livemint.com:

Mint explains why. In the first quarter of FY24 the government’s fiscal deficit widened to ₹4.51 trillion, or 25.3% of annual estimates, up from 21.2% a year ago. This was largely due to a sharp increase in capital expenditure and accelerated tax devolution to state governments, which offset the increase in non-tax revenue.

However, with buoyancy in tax collections, reduced revenue expenditure and strong capex, there are positive signs as well. Finance minister Nirmala Sitharaman said in her budget speech this year that India would aim to narrow the fiscal deficit to 5.9% of GDP during FY24, from 6.4% in the previous fiscal. India’s fiscal deficit hit a record high of 9.2% during FY21 on the back of higher government expenditure after the pandemic.

A spurt in economic growth, supported by public and private capital expenditure, and higher tax buoyancy will help the government achieve its fiscal-deficit target. The recent higher-than-budgeted dividend surplus transfer from the Reserve Bank of India (RBI) to the tune of Rs. 874.2 billion will provide some headroom.

Sticking to fiscal-deficit targets helps improve sovereign ratings. The government has been urging global rating agencies to upgrade their sovereign ratings as India is currently at the lowest possible investment grade. The government believes several of its economic metrics have improved vastly since the pandemic.