India’s Fiscal Discipline and Core Sector Resurgence: H1 FY25 Highlights

Fiscal Deficit Narrows as Revenue Collection Improves

India's fiscal deficit for the first half (H1) of FY25 narrowed to ₹4.75 trillion, reaching just 29.4% of the annual target. This marks an improvement from ₹7.02 trillion in H1 FY24, primarily due to higher tax revenues, an unprecedented dividend from the Reserve Bank of India (RBI), and cautious capital expenditure amidst the general elections.

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Key Figures:

• Net Tax Receipts: ₹12.65 trillion (49% of annual target) compared to ₹11.60 trillion in H1 FY24.
• Government Expenditure: ₹21.11 trillion, or 43.8% of the annual budget, down slightly from ₹21.19 trillion in H1 FY24.
• Capital Expenditure: ₹4.15 trillion, or 37.3% of the annual goal, showing a reduction from last year’s 49%.
• Non-Tax Revenue: ₹3.57 trillion (65.5% of target), bolstered by a record RBI dividend.

Aditi Nayar, chief economist at ICRA Ltd., commented, "The deficit reduction is encouraging, but meeting FY25 capex goals remains ambitious, with monthly spending needing to reach ₹1.16 trillion in the second half."

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RBI Dividend Bolsters Fiscal Stability

The RBI’s ₹2.11 trillion dividend, a 141% year-over-year increase, has given critical support to the government’s fiscal agenda. This substantial contribution strengthens India’s ability to meet its ambitious FY25 deficit target of 4.9% of GDP, down from last year’s 5.6%. This payout will help mitigate risks of revenue shortfalls or cuts in spending.

Core Sector Rebounds in September

India’s core sector output showed a modest recovery in September, with a 2% annual growth following a 1.6% contraction in August. Five of the eight core industries—coal, steel, cement, fertilizers, and refinery products—recorded positive growth, signaling renewed momentum for nearly 40% of the industrial economy.

Sector Highlights:

• Coal: Production rose by 2.6% after August’s 8.1% drop.
• Steel: Increased by 1.5%, though down from August’s 3.9%.
• Cement: Rebounded with a 7.1% rise after a prior decline.
• Electricity: Output fell by 0.5%, extending its previous contraction.

In summary, India’s fiscal discipline is evident, though sustaining growth in industrial output and meeting capex targets will be crucial for maintaining momentum. With careful balancing of fiscal goals and industrial policies, India’s economic growth remains on a cautious but optimistic trajectory for FY25.

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