The Economy Observer : Total spending picks up, led by capex By Motilal Oswal Financial Services Ltd
Total spending picks up, led by capex
Fiscal deficit at 56.5% of FY25BE in Apr-Dec’24
* Total spending growth by the central government picked up to 22.1% in Dec’24 vs. 3.6% growth in Nov’24. At the same time, core spending (total spending excluding interest payments and subsidies) grew at a 10-month high of 37.6% in Dec’24 vs. a contraction of 5.1% in Nov’24.
* Acceleration in total spending growth was mainly led by capital spending, which grew at the five-month highest pace of 95.3% YoY in Dec’24 (vs. 21.3% in Nov’24). Capital spending was INR 1.7t in Dec'24, the highest ever in a month. Notably, capital spending excluding loans and advances marked its first expansion in Dec’24 after declining for four straight months (70.1% in Dec’24 vs. -20.2% in Nov’24). On the other hand, total revenue spending remained muted in Dec’24 (1.3% YoY in Dec’24 vs. 0.5% in Nov’24). (Exhibits 1 and 2).
* In order to meet the budgeted target of INR11.1t, capex should grow 75% YoY in 4QFY25, implying a spending of >INR4.0t. However, there have only been five months in the past 25 years with monthly spending >INR1.0t. The shortfall in capex could still be substantial.
* Accordingly, the government’s total spending in Apr-Dec’24 stood at INR32.3t, up 5.8% YoY and accounting for 67% of FY25BE, the lowest in a decade (vs. INR30.5t in Apr-Dec’23; 68% of FY24BE). Capital spending in Apr-Dec’24 stood at INR6.8t (up 1.7% YoY), representing 61.7% of FY25BE (vs. 67% of FY24BE or INR6.7t in Apr-Dec’23). Capital spending excluding loans and advances was now only 3.7% YoY lower in Apr-Dec’24 (vs 15.4% as of Apr-Dec’23) and was at a decade low of 61.3% of BEs (except FY21). On the other hand, revenue spending stood at INR25.5t (up 7.0% YoY) in AprDec’24, representing 68.6% of FY25BE (vs. 68% of FY24BE or INR22.3t in Apr-Dec’23).
* Meanwhile, total receipts picked up, growing at the six-month highest pace of 29.8% YoY in Dec’24 (vs. 10.6% growth in Nov’24). (Exhibit 3). While net tax revenue grew 35.8% in Dec’24 (3.5% in Nov’24), non-tax receipts contracted 26.3% (lowest in 15 months). The pick-up in net tax revenue was mainly led by corporate tax collections (10.6% in Dec’24, highest in three months) and indirect tax collections, especially GST collections. However, income tax collections growth decelerated to 15.9% YoY in Dec’24 (vs. 60.9% in Nov’24). Indirect tax collections growth picked up to 7.1% in Dec’24 (vs. 1.0% growth in Nov’24), mainly led by higher GST collections (12.9% in Dec’24 vs. -4.8% YoY in Nov’24).
* Therefore, for Apr-Dec’24, the total receipts of the government rose 11.9% YoY. Corporate tax collection was up 2.7% YoY and income tax revenue grew 22.2% YoY. Total receipts stood at INR23.1t, representing 73.4% of FY25BE (vs. INR20.1t or 78% of FY24BE during Apr-Dec’23).
* Consequently, in Apr-Dec’24, the government’s fiscal deficit stood at INR9.1t, accounting for 56.6% of FY25BE vs. 55% of its FY24BE (or INR9.8t) in Apr-Dec’23 (Exhibit 4).
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