This note looks at certain trends in the finances of the central government for the period from 2019-20 to 2024-25.  The initial years of 2019-20 and 2020-21, were marked by economic slowdown and the COVID-19 pandemic.  The imposition of national lockdown in 2020-21, took a toll on the finances of the central government.  Tax collection plummeted while fiscal and revenue deficits increased to multi-year highs.  However, some of the increase in the central government’s fiscal deficit was because of clearing of unpaid subsidy dues from previous years.     

In the post pandemic period, the central government has significantly increased budgetary expenditure on capital outlay.  It has also been providing interest free loans to states for capital expenditure.  On the revenue side, the central government’s gross tax revenue as a percentage of GDP has remained broadly similar.  However, it has consistently fallen short of meeting its disinvestment estimates.  This note was originally published in February 2024 after the interim budget.  It has been updated to reflect the latest budget estimates for 2024-25 as presented in July 2024. 

Capital expenditure of public sector at lower levels despite higher budgetary outlay

The central government undertakes capital outlay in various sectors such as defence, railways, roads, and highways.  Capital outlay leads to the creation of assets and increases the economy’s productive capacity along with promoting efficiency.[i]  There are two broad ways of funding public sector capital outlay: (i) through direct budgetary support by the central government or (ii) mobilising resources by public enterprises and departmental undertakings.  Public enterprises and departmental undertakings (such as Indian Railways under the Ministry of Railways) can mobilise resources for capital investment through various sources such as utilising internal receipts, issuing bonds, and external commercial borrowings.  These are also known as internal and extra-budgetary resources (IEBR).