India’s Fiscal Deficit Hits ₹13.5 Lakh Cr by Feb-End; Capex at 80% of FY25 Target

Fiscal Deficit Nears Annual Target as Government Spending Lags

India’s fiscal deficit for the period April 2023 to February 2024 has reached ₹13.5 lakh crore, which accounts for 85.8% of the full-year target of ₹15.7 lakh crore, according to government data released on March 28. This figure is slightly lower than the 86.5% of the target recorded in the same period last year, signaling a marginal improvement in fiscal discipline. However, while the government has managed to contain its deficit within projected levels so far, concerns remain regarding the pace of spending, particularly in capital expenditure, which is a critical driver of long-term economic growth.

Despite an ambitious fiscal roadmap, capital spending has lagged significantly behind expectations, with total capex reaching only ₹8.1 lakh crore as of February-end, representing 80% of the FY25 target of ₹10.2 lakh crore. With only one month left in the fiscal year, the government will need to spend an additional ₹2.1 lakh crore in March to meet its capital expenditure goal. The slow pace of infrastructure investments raises concerns about whether key projects will be completed as planned, potentially affecting economic expansion and employment generation.

Capital Expenditure Falls Short, Raising Investment Concerns

One of the key pillars of India’s economic strategy has been higher capital expenditure, which drives infrastructure development, industrial growth, and job creation. The government had initially earmarked ₹10.2 lakh crore for capex spending in FY25, but as of February, only ₹8.1 lakh crore had been utilized. This means that 20% of the budgeted amount must be spent in March alone, a challenging feat given the bureaucratic and logistical hurdles involved in large-scale infrastructure investments.

Compared to the previous fiscal year (FY24), when capex utilization had reached 85% by February, this year’s 80% utilization suggests a slowdown. This delay in spending could be attributed to slower execution of infrastructure projects, delays in fund allocation, and administrative bottlenecks. If the government fails to ramp up spending in March, the risk of unspent funds rolling over into the next fiscal year increases, potentially affecting the FY26 budget plans.

• Capex spending (April-February FY25): ₹8.1 lakh crore

• FY25 capex target: ₹10.2 lakh crore

• Shortfall: ₹2.1 lakh crore to be spent in March

• Capex target for FY26: ₹11.2 lakh crore

Revenue Expenditure Sees Higher Utilization, Indicating Increased Spending on Subsidies and Salaries

While capital expenditure has faced delays, revenue expenditure—the portion of government spending dedicated to salaries, pensions, subsidies, and interest payments—has shown a higher utilization rate. As of February-end, ₹30.8 lakh crore had been spent, amounting to 83.3% of the full-year target. This is slightly higher than the 83.1% utilization recorded in the same period last year.

Revenue expenditure is essential for the smooth functioning of government services and social welfare schemes, but a disproportionate rise in revenue spending compared to capital investments may impact long-term economic productivity. Higher spending on subsidies and salaries, without a corresponding increase in infrastructure development, could limit the government’s ability to generate sustainable economic growth in the coming years.

• Revenue expenditure (April-Feb FY25): ₹30.8 lakh crore (83.3% of target)

• Total government expenditure: ₹47.2 lakh crore (82.5% of target)

• Previous year’s utilization rate: 83.4%

Tax Revenue Collection Falls Below Expectations, Raising Fiscal Risks

The government’s ability to meet its fiscal deficit target depends heavily on tax revenue collection, and data suggests that tax revenues have fallen slightly below expectations. As of February, net tax revenue stood at 78.8% of the full-year target, compared to 79.6% in FY24.

A slowdown in tax collections could be attributed to sluggish indirect tax receipts, lower-than-expected GST collections, or corporate tax adjustments. Given that tax revenue is a major source of government funding, any shortfall may force the government to either cut expenditure in the final month or increase borrowing to bridge the gap.

• Net tax revenue (April-Feb FY25): 78.8% of the target

• Previous year’s net tax revenue (April-Feb FY24): 79.6%

If revenue collections do not improve significantly in March, the government may need to adjust spending priorities in the next fiscal year to avoid fiscal slippage.

Government Borrowing Set to Rise in FY26 as Deficit Management Becomes a Priority

With fiscal deficit management being a key priority, the government is expected to increase its borrowing in FY26. The total gross borrowing for the next fiscal year is estimated at ₹14.82 lakh crore, representing a 5.7% increase compared to FY25.

In a bid to manage cash flows efficiently, the government is likely to frontload a significant portion of its borrowing in the first half of the fiscal year, similar to the strategy adopted in previous years. As per data released on March 27, the gross borrowing for the first half of FY26 has been set at ₹8 lakh crore, which accounts for 54% of the full-year target.

• FY26 borrowing estimate: ₹14.82 lakh crore (+5.7%)

• Gross borrowing for first half of FY26: ₹8 lakh crore (54% of the target)

Higher borrowing levels indicate that the government will need to carefully manage its debt servicing costs, as excessive reliance on borrowing could lead to higher fiscal pressure in the future.

Highlights and Fiscal Implications

1. Capex Spending Lag: The government has spent only 80% of its capex target, requiring a significant acceleration in March to meet fiscal goals.

2. Revenue Expenditure Growth: Spending on subsidies, salaries, and social welfare programs remains high, while capital investments lag.

3. Slower Tax Revenue Collection: The tax collection rate is slightly below expectations, which could impact fiscal balance.

4. Rising Borrowing Needs: The government is expected to increase its borrowing by 5.7% in FY26, raising concerns over long-term debt sustainability.

5. March Spending Crucial: The final month of FY25 will be critical for meeting spending targets, especially in infrastructure investments.

The government’s ability to balance fiscal discipline with economic growth will be closely watched, especially as it prepares for the next financial year. The pace of spending in March and tax revenue collections in the final quarter will play a decisive role in determining whether the fiscal deficit remains within control.