The government overachieved its fiscal deficit target of 5.9% in FY24 by 10bps due to higher-than-expected non-tax revenue receipts and lower CAPEX spending in the second half of the fiscal year. The fiscal consolidation of 70bps to 5.1% in FY25 seems ambitious, but achievable given the recent robust growth in tax collections despite lower nominal GDP growth. Fiscal space is expected to be created by further rationalisation of subsidies. The focus on CAPEX remains, even though the pace of growth is estimated to be slower. Considering the government’s assumption of higher nominal GDP growth in FY25, a budgeted slowdown in gross tax revenue growth appears conservative and carries an upside risk. The lower borrowings estimate for FY25 brought cheer to the bond markets.
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