How the Indian Budget Deficit Grew

While the years during and after the Covid-19 pandemic initially caused the Indian deficit to widen, the 2024/25 government budget released Tuesday sees the smallest portion covered by debt receipts since fiscal year 2018/19. However, this is largely due to a significant dividend payout by the country's central bank which was made possible by higher interest rates on securities and higher sales of foreign exchange in the current global economic climate, according to CNBC. Looking only at the share of tax revenue and non-dept capital income in the budget, this increased much more slowly from 42.5 percent in a debt-intense 2020/21 to 55.2 percent planned for the current fiscal year. In the years immediately prior to the pandemic, between 53-64 percent of the Indian budget had been covered by tax and related income.

Indian budget expenditure rose more than 30 percent in 2020/2021 and has increased by an additional 7-10.5 percent annually since. Tax revenue in the same time frame rose by an average 13.4 percent annually. While overall, food subsidies decreased in the current budget, additional pandemic era entitlements, for example of the PMGKAY program, continue to be paid out and continue to increase spending. An infrastructure plan for railroads, highways and airports announced in 2021 is another cost factor, as is recently increased defense spending and ever-ballooning interest payments. Despite initiatives to rein in pension and tax administration costs, they are back up towards or beyond 2022/23 levels with this current budget. Most recently, the re-elected Modi government announced more spending on rural development and increased payments to states, including to Andhra Pradesh, where returning BJP allies Telugu Desam Party have their stronghold. Also announced were 2 lakh crore rupees/$24 billion of spending on job creation over the next five years.