A recent report by the State Bank of India (SBICAPS) titled "Indian Economy: Maintaining momentum on a deteriorating Global Pitch" says that boosted by the momentum seen in advance tax collections, slim treasury bill borrowings calendar and record RBI dividend, the government will continue on the path to fiscal consolidation in FY25.

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The report suggests that the government has outperformed the FY24 revised estimate (RE) target for a fiscal deficit of 5.8 per cent to reach at 5.6 per cent (of nominal GDP). Achieved because of good fiscal management, buoyant tax collections, measured revenue expenditure increase and spending restrictions.

"We expect fiscal prudence will be maintained amidst measures to boost rural consumption. We anticipate an increased emphasis on rural housing and PLI schemes for employment-focused industries, the renewable sector, and MSMEs. Success in the coming years will largely hinge on strategic allocation of funds across sectors, akin to positioning fielders on a bouncy pitch," the report added.

The report adds that the various avenues of income for the government such as corporate tax, income tax, customs duty, excise duty, Goods and Services Tax, Net tax revenue, and non-tax revenue have shown better than estimated revenue collections not only in FY24 but also in the first two months of FY25.Corporate tax collection is up 10.32 per cent in FY24, more than the budget estimate of Rs 9,227 bn. In the first two months of FY25, advance corporate tax collection is up 4 per cent.

Similarly, in the first two months of FY25, income tax collections are up 16 per cent than the budget estimate. Custom duty and excise duty are up 12 per cent and 8 per cent than BE respectively. Good and Services Tax (GST) is up 16 per cent as per the SBI CAPS report.

In addition to these, the record dividend transfer of Rs 2.11 lakh crore from RBI will also help the government to manage its expenditure and fiscal numbers.However, the report says, the fund transfers to the states are steadily growing, in FY24 the transfer was more than Rs 11 trillion which is consistently rising from the financial year 22.

The total borrowings through state government securities (SGS) amounted to Rs. 10.1 trillion in FY24, compared to Rs. 7.6 trillion in FY23. This suggests that the states have borrowed significantly more money in FY24 than in the previous fiscal.

However, it was also observed that the top five states accounted for 72 per cent of the additional SGS issued, which indicates that only a few states are primarily driving the increased borrowings.

Looking ahead, the report added that in FY25, it is expected that the total SGS issuances will rise further to approximately Rs 10.5 trillion. Despite higher fund transfers to states, more spending on welfare and infra project centres will be able to manage fiscal deficit within the targeted levels.

The report says that it expects the combined fiscal deficit of states and the centre to stay at around 8 per cent of GDP in the financial year 2025.The report adds that various rating agency officials are confident of an upgrade for India provided the fiscal glide path is maintained over the next 2 years.